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Market Commentary

It was a very challenging year for emerging market investors. The first signs of pressure for our asset class were felt in the first quarter of 2018 as the US dollar started its one-way path upward mostly driven by a determined push by the new US Federal Reserve Chairman to tighten monetary policy. These brought forward investors’ concerns about the debt sustainability of the weakest emerging market sovereigns such as Turkey and Argentina. These two countries alone saw their currency lose more than 70% of their value in the nine months to September.1 Fortunately, we did not see contagion risks to neighbouring countries. While emerging market spreads have widened significantly since the beginning of the year due to indiscriminate selling, mostly as a result of ‘tourist money’ or short-term traders leaving the market, we still have a cautious outlook going into 2019 and continue to position ourselves defensively. However, we have been selectively increasing our allocation to solid high yield names where spreads have overshot and do not reflect the fundamentals. In our view the main risks for the first half of 2019 will continue to be external and similar in nature to the ones we have already seen this year