Will 2019 be a banner year for emerging market debt?

January 22, 2019

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We think the coming year may be a banner one for bond issuers from the Gulf states. This is because, recognizing the region’s increased standing, index provider JPMorgan has announced the inclusion of five GCC (Gulf Cooperation Council) countries (Oman is currently included) to its suite of emerging market (EM) hard currency sovereign indices. With more than US$360bn benchmarked against these indices and a likely 11% weighting for the GCC region expected when the indices fully rebalance, these bond markets are expected to receive strong inflows. (Their entry to the indices is to be phased between January 31 and September 30, 2019.)

Such a move makes sense in Insight’s view. A notable trend in recent years has been the considerable increase in sovereign bond issuance from GCC states. In the past three years GCC countries combined have issued a quarter of all new debt sold by emerging markets. As a percentage of the EM hard currency sovereign debt asset class, GCC accounts for around 14% , up from just 5% in 2014, as at September 26, 2018.

All data from JPMorgan, as at September 26, 2018

Insight Investment – a BNY Mellon company

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Index definitions:

JPMorgan Emerging Market Bond Index Global: The JPM EMBI Global is for measuring the total return performance of international government bonds issued by emerging market countries that are considered sovereign (issued in something other than local currency) and that meet specific liquidity and structural requirements.

JPMorgan Emerging Market Bond Index (EMBI) Global Diversified: The JP Morgan EMBI Global Diversified Index includes dollar-denominated sovereign bonds issued by a selection of emerging market countries. It limits the weights of countries with larger debt stocks by only including a specified portion of these countries' eligible current face amounts of debt outstanding.

JPMorgan Euro-Emerging Market Bond Index Global: The JPMorgan Euro-Emerging Market Bond Index Global is for measuring the total return performance of government bonds issued by emerging market countries that are considered sovereign (priced in Euros) and that meet specific liquidity and structural requirements.

Bonds are subject to interest rate, credit, liquidity, call and market risks, to varying degrees. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes and rate increases can cause price declines.

Investing in foreign denominated and/or domiciled securities involves special risks, including changes in currency exchange rates, political, economic, and social instability, limited company information, differing auditing and legal standards, and less market liquidity. These risks generally are greater with emerging market countries.

Investment advisory services in North America are provided through two different investment advisers registered with the Securities and Exchange Commission (SEC), using the brand Insight Investment: Insight North America LLC (INA) and Insight Investment International Limited (IIIL). The North American investment advisers are associated with other global investment managers that also (individually and collectively) use the corporate brand Insight Investment and may be referred to as “Insight” or “Insight Investment.” Views expressed are those of the advisor stated and do not reflect views of other managers or the firm overall. Views are current as of the date of this publication and subject to change. This information contains projections or other forward-looking statements regarding future events, targets or expectations, and is only current as of the date indicated. There is no assurance that such events or expectations will be achieved, and actual results may be significantly different from that shown here. The information is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Please consult a legal, tax or investment advisor in order to determine whether an investment product or service is appropriate for a particular situation. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. BNY Mellon Investment Adviser, Inc., Insight, and BNY Mellon Securities Corporation are subsidiaries of BNY Mellon. 

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