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EM while you were out

Weekly investor research

03 January 2017

Emerging Markets local currency bond markets outperformed developed market bonds in 2016. EM currencies also outperformed the Dollar. Venezuelan sovereign bonds were the outstanding performer in 2016 with a return of 53.19% for the year. We expect further EM fixed income outperformance in 2017. The average improvement in Emerging Markets current account balances since QE began increased from 3.5% of GDP last year to a whopping 4.3% of GDP over the past twelve months. The volume of EM fixed income trading rose by 20% in Q3 compared to the same period last year with local currency bond trading rising fastest. The Russian-Turkish brokered ceasefire in Syria, whether it holds or not, is telling of shifts in the geo-political landscape that extend far beyond Syria itself. China accelerated reforms in a number of areas. Gloves come off in Argentina as politics heat up ahead of the 2017 mid-term election. Brazilian inflation is now falling very fast and the trade surplus is the largest since 1980. Colombia surprises by passing a key tax reform before year-end. Mexico’s economy shows signs of beginning to benefit from its weaker currency. Saudi Arabia’s budget points to greater stability in the year ahead. Park’s problems in Korea spread to the national pension fund. In Venezuela, President Nicholas Maduro almost manages to unseat himself as he mismanages a currency exchange.

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