Emerging Markets Debt Monitor Q2 2020

Eaton Vance
By July 21, 2020 11:46

Emerging Markets Debt Monitor Q2 2020

  • The second quarter represented a dramatic rebound for financial markets, including emerging markets, after the severe sell-off in March. While COVID-19 continues to pose a generational challenge to the world and the lives and livelihoods of some of the world’s most vulnerable people, financial markets perceived value in the combination of massive policy responses around the world, a lot of bad news being priced in with peak uncertainty likely past as more has been learned about the virus, economic surprises likely to be to the upside after major reset lower and lockdown measures easing, valuations broadly compelling, and investor cash levels high.
  • The three main EMD indices experienced significant gains during the quarter with FX, local rates, sovereign credit spreads and corporate credit spreads over the relevant sovereigns all rallying.
  • Record outflows from EMD stabilized during Q2 with a return to inflows in June.
  • Throughout the quarter, many EM central banks continued aggressively easing policy by cutting rates and some even engaging in quantitative easing. This is unprecedented for EM to be so dovish during a crisis period, but the market has so far “let them get away with it” – largely due to the extreme dovishness of the U.S. Fed, but also the global disinflationary trend continuing now supported by a large demand shock.
  •  The new issuance market re-opened in a big way with near-record issuance and for countries across the credit quality spectrum
Eaton Vance
By July 21, 2020 11:46

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