PI Partnership
have high conviction in the names we do decide to buy. The EM corporate debt market has been particularly inefficient lately in light of the COVID-19 pandemic and the global economic down- turn. Asset price dispersion today remains elevated, and investors continue to be rewarded for providing liquidity, particularly for high yield issuers. The selloff earlier this year punished many issu- ers indiscriminately and irrespective of quality. Part of the recovery
since has been a beta-driven rally spurred by massive global liquid- ity support. However, as stimulus wanes and valuations become more normalized, excess returns in the asset class are likely to be driven by careful security selection. Our bottom-up, fundamental research approach will become increasingly important as the mar- ket environment becomes less beta-driven and fundamentals come back to the fore.
Wide Dispersion of Valuations Yields of B-Rated Emerging Market Corporate Bonds
2% 4% 6% 8% 10% 12% 14% 16%
Jun-17
EM Corporate Yield to Maturity -B rated Yield to Maturity at Issuance
14.9%
3.6% Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20
As of 30 June 2020 The chart reflects B-rated bonds issued from emerging markets corporates in USD terms. It is a comprehensive universe including issues in and off the J.P. Morgan CEMBI Broad Diversified
Index.Sources: J.P. Morgan Chase & Co., Bond Radar.
Data analysis by T. Rowe Price
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November 2020 portfolio institutional roundtable: Emerging market debt 17
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