Emerging market bond slump creates opportunities for investors

Emerging market bond slump creates opportunities for investors

It has been a tough year for emerging market bonds. Investors pulled a record $70bn from funds investing in EM debt between January and the end of September — a period that included only seven weeks of net inflows.

Those relentless outflows signal how badly markets have been battered in 2022, with the soaring US dollar and rising global interest rates sucking money out of EM assets. The question now is whether inflation and interest rates are near their peak, creating an opportunity for bond prices to rise again.

Many emerging economies had a promising start to the year. A recovery from the pandemic seemed well under way and several EM central banks had acted quickly to get inflation under control, raising interest rates from as early as the first quarter of last year.

But Vladimir Putin’s war on Ukraine changed that.

“If the war hadn’t happened, we would have seen inflation peaking in the first quarter and, by now, it would be falling across the board,” says Simon Quijano-Evans, chief economist at Gemcorp Capital Management. “But, thanks to the invasion, energy and food prices skyrocketed, catching everyone by surprise.”

Soaring food and fuel prices are especially toxic for consumers in developing countries, where staples