EM opportunity knocks — what to make of the recent market volatility

Emerging market debt has tumbled, but the macro story remains compelling

Time to read: 4 min

Following two consecutive years of double-digit returns in 2016 and 2017, emerging market (EM) debt1 has had a rocky ride so far in 2018. However, in the view of Invesco Fixed Income, the proximate cause for the recent volatility has been a tightening in US financial conditions, not a deterioration in overall EM fundamentals. Therefore, we believe this EM correction has created the largest divergence between fundamentals and valuations seen in many years, and offers a compelling opportunity to add exposure to EM in local currency debt.

The US dollar has risen sharply


Are emerging markets still attractive?

Even after a 34% gain in 2017, we see continuing opportunity in EM this year

Time to read: 2 min

Emerging markets (EM) delivered in 2017, with the MSCI Emerging Markets Index returning 7.1% in the fourth quarter and 34% for the year — outperforming the developed market MSCI EAFE Index in both periods.1 This strong performance was driven by improving economic conditions and stronger earnings. Among the macro positives were a solid pickup in global trade, improvement in external accounts, upward revisions to gross domestic product (GDP) growth, benign inflation and price support for energy and commodities.

Country-specific highlights