Emerging Markets Debt
Reaping value from economic power shifts webinar
Emerging markets has become a bastion of stability with lower volatility and high carry.
In focus
Why Emerging Markets Debt (EMD)?
Macro tailwinds: Shifting geoeconomic dynamics and “higher-for-longer” developed market rates are reshaping capital flows, supporting EMD’s income potential and diversification appeal.
Improving fundamentals / credit quality: EMD’s appeal is rising as many EM countries have strengthened fiscal discipline and policy credibility. With improved fundamentals built over the past decade, EM assets are now less sensitive to global “risk-off” events.
Positive ratings momentum: Credit rating agencies are increasingly recognising these improvements, with more favourable outlooks and a higher likelihood of upgrades across sovereigns and corporates.
Lower volatility produces stronger risk-adjusted returns: Stronger external balances, higher reserves, and more credible monetary policy have helped lower volatility across many emerging markets.
Attractive valuations and carry vs Developed Markets: EMD offers higher yields and a more attractive risk-return profile than DM credit, with carry remaining compelling even if US rates stay higher for longer.
Under-allocation / technical support: EMD remains under-represented in global portfolios. A renewed investor focus could drive inflows while robust issuance further supports the asset class.
EM local debt strong return potential: A softer dollar could boost local-currency returns via FX, while more credible inflation dynamics have allowed EM central banks to cut earlier and faster than the Fed.
Why HSBC Asset Management?
Emerging markets are part of our corporate DNA. We have over 20 years of experience managing Emerging Markets Debt, across hard currency, local currency and sustainable portfolios.
We have the flexibility to select from the widest universe of emerging markets debt instruments, to provide investors with the best opportunity to add value in portfolios.
- Experienced and connected team of sovereign analysts and global platform for credit research, focused on rigorous fundamental analysis and engagement with issuers
- Sophisticated investment process that leverages our conservative approach and an advanced risk calibration methodology that produces reliable and low-volatility actively managed portfolios
- Strong governance delivered by the oversight of multiple internal risk teams, maintaining the Firm’s strict investment standards
Key risks
The value of an investment in the portfolios and any income from them can go down as well as up and as with any investment you may not receive back the amount originally invested.
- Counterparty Risk The possibility that the counterparty to a transaction may be unwilling or unable to meet its obligations
- Credit Risk A bond or money market security could lose value if the issuer’s financial health deteriorates
- Default Risk The issuers of certain bonds could become unwilling or unable to make payments on their bonds
- Derivatives Risk Derivatives can behave unexpectedly. The pricing and volatility of many derivatives may diverge from strictly reflecting the pricing or volatility of their underlying reference(s), instrument or asset
- Emerging Markets Risk Emerging markets are less established, and often more volatile, than developed markets and involve higher risks, particularly market, liquidity and currency risks
- Exchange Rate Risk Changes in currency exchange rates could reduce or increase investment gains or investment losses, in some cases significantly
- Interest Rate Risk When interest rates rise, bond values generally fall. This risk is generally greater the longer the maturity of a bond investment and the higher its credit quality
- Investment Leverage Risk Investment Leverage occurs when the economic exposure is greater than the amount invested, such as when derivatives are used. A Fund that employs leverage may experience greater gains and/or losses due to the amplification effect from a movement in the price of the reference source
- Liquidity Risk Liquidity Risk is the risk that a Fund may encounter difficulties meeting its obligations in respect of financial liabilities that are settled by delivering cash or other financial assets, thereby compromising existing or remaining investors
- Operational Risk Operational risks may subject the Fund to errors affecting transactions, valuation, accounting, and financial reporting, among other things
- Sustainability Risk Sustainability risk means an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment