Editorial


Mark Dunne Editor


m.dunne@portfolio-institutional.co.uk


Emerging markets: If not now, when?


Sometimes, it’s not you…it’s them. This was certainly the case for emerging market countries last year. Developing nations are forecast to drive more than half of global GDP growth in the next decade, a nod in part to its favourable demographics. It is, therefore, understandable that long-term investors want exposure. The growth drivers are strong and many of these countries are not as indebted as some developed nations are, such as the US, where debt- to-GDP exceeds 100%, or Japan, where the figure is north of 200%. Yet the performance of debt issued by emerging market governments was disappointing in 2018. This was not due to concerns over the issuer’s ability to make the coupon payments, but a strengthening US dollar. Many emerging market countries peg their monetary system to that currency, so a decision to increase interest rates in Washington could hit the region hard. But this year it could be a different story. In December, the Federal Reserve announced that it would be adopting a more dovish stance. Further strengthening the investment case is the International Monetary Fund’s (IMF) forecast that emerging market growth will hit 4.5% this year. Bullish investors have already increased their exposure. Indeed, in the final three months of 2018 around £21bn was invested in emerging market government paper. Yet dark clouds continue to hover over these countries, especially the fear of a trade war between the world’s two largest economies and the impact it would have on China and its neighbours. With emerging markets being such a huge topic in investment circles, our cover story looks at the pros and cons and asks if it really will be a good year for EM debt. Our coverage starts on page 30.


Issue 82 | March 2019 | portfolio institutional | 3


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