Emerging markets local currency bonds have started the year on a strong note. The JP Morgan GBI-EM Global Diversified index is up 14.7% year to date, outperforming the JP Morgan EMBI Global Diversified by 140bps and the Barclays Global Agg. by close to 500bps. The strong performance after an extremely poor period between May-2013 and Dec-2015 is now leading many investors to ask whether it is the right time to add or if the rally is already over. We believe this is only the beginning of a longer period of recovery for EM local markets.
In this piece, we explore fundamental, valuation and positioning aspects supporting the case for local currency bonds. Finally, we explore the question of timing, comparing the current environment to previous episodes on the asset class. We believe the case is strong and the time is now.