Emerging Market Bonds Still Attract Investment Despite Volatility, but with Caution

Based on the latest information provided, it seems that some investors are still betting on local currency debt from developing nations despite recent market volatility. Victoria Courmes at Grantham Mayo Van Otterloo & Co. Argues that delays in rate cuts by central banks in emerging economies, caused by the delay in rate cuts by the Federal Reserve, have made local EM bonds more attractive. However, investors are approaching the trade cautiously due to the uncertain state of the US economy and geopolitical conflicts. Selective pockets, such as Mexico, Brazil, Uruguay, and the Dominican Republic, are being targeted for attractive yields, while investors stay market-weight on the broad asset class. Among favored bets, Brazil’s rates are considered “very high.” While around half of the developing-nation currencies tracked by Bloomberg have gained in total returns this year, the dollar’s “virtuous cycle” continues to pose a challenge for investors. Notable events to watch include India’s CPI, Russia’s consumer prices, Poland’s GDP data, Brazil and Peru’s monthly economic activity data, China’s one-year medium-term lending facility rate, and the Philippines central bank’s decision to keep borrowing costs unchanged.