Babies Thrown Out With the Bathwater II: Emerging Markets Debt

November 05, 2015

Certain emerging markets countries have not been safe from being thrown out as “babies with the bathwater” during the past year’s global credit selloff trend.

This week’s Chart of the Week shows the spreads in basis points of the 10-year sovereign bonds from key Latin American, Asian, and EMEA (which stands for European, Middle Eastern and African) emerging countries.  The chart shows the widening of these spreads from December 2013 in the blue bars, through the energy dislocation of December 2014 and China’s devaluation of September 2015, to October 2015 in the red bars.  It is not surprising that Venezuela’s and Russia’s spreads are elevated as they are major oil exporters.

However, the countries that may at least in part have been subject to the “babies thrown out with the bathwater” effect have ranged from Latin America’s Mexico to Brazil, Asia’s Korea, and the EMEA region’s Bulgaria.  For example, Mexico’s spreads have widened from 112 basis points to 161 basis points from December 2013 to October 2015.  These emerging markets babies that have been thrown out with the bathwater represent possible value and interesting opportunities for emerging markets bond managers.

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

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