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#EmergingMarketDebt

In December of 2020, Capital Group published an outlook for emerging market debt. In this paper the global macro environment and the development of the pandemic are pointed to as the drivers for the returns of emerging market debt in 2020. These developments together with the fundamentals of emerging markets and political decisions will be the drivers for emerging markets in 2021 according to Capital Group.

Even though rising debt and inflation are areas of focus, fiscal and monetary stimulus, more constructive geopolitics, and attractive valuations in an environment of developed market recovery should be positive for the outlook of emerging market debt in 2021. The recovery of developed markets will also be an important factor for the performance of emerging markets due to the exporting nature of emerging markets. Furthermore, overall emerging markets should benefit from a rise in commodity prices, according to Capital Group.

In the monthly investment outlook of December by UBP the case for emerging market debt is also made. Asian and Chinese government debt have already benefitted from the anticipation of a global economic recovery and a weaker USD dollar, this trend will continue in 2021 according to UBP.

The positive macro backdrop for emerging market debt is also echoed by Eaton Vance. In a recent paper named “local-currency emerging market debt outlook supported by macro backdrop”, Eaton Vance states that the key to investing in emerging market debt is analysing countries based on individual risk factors such as: local interest rates, currencies, and sovereign and corporate spread.

Eaton Vance states that the main challenges for emerging market debt for 2021 will be the high debt ratios in a high number of countries, the question if countries will weaken their dollar to be more competitive in 2021 and inflation.