EM Fixed Income: Cross currents bring risks and opportunities

What will inflation, pandemic developments and global policy responses mean for emerging market fixed income as we move through the first quarter and beyond?

Fixed income 13 Jan 2022 10 min read

Key takeaways

  • Global growth, global trade and commodity prices are amongst the most important global factors affecting EM economies and influencing EM asset prices – what do we expect in 2022?
  • The outlook for Q1 2022 is still cloudy, even though the entry level into the asset class has become attractive for both FX and yields.
  • Currencies are undervalued by historical standards, while advanced hiking cycles in many countries have restored yield support for currencies (particularly in Russia and Brazil).
  • We are only cautiously optimistic on the market given that the continuing disruptions from the COVID-19 pandemic and persistent global inflation create unexpected political slipovers.
  • Economic slowdown in China and the looming start of the rate hikes in the US are the main global headwinds for the beginning of the year.
  • We expect the main world economic centers to grow at a healthy pace in 2022, with lower/stable inflation (US, EU/ China) as the year goes by.

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