Real interest rates suggest value in EM debt
In the wake of first-quarter volatility, emerging market (EM) debt as offers a number of value opportunities, according to Eaton Vance.
The EM team at Eaton Vance said one of the key macro indicators of value in EM debt was the real interest-rate differential with developed-market debt — the spread between EM debt and developed markets, after adjusting for anticipated inflation in respective countries.
“In our view, the key to capitalising on EM debt opportunities in this environment will rely heavily on understanding the economic trends within each country and the forces driving real interest-rate differentials,” the firm said.
“Many EM countries have had more recent experience with elevated inflation levels. That contrasts with developed markets, where inflation is being driven — at least initially — by post-pandemic issues, like supply chain constraints and large price jumps compared with year-ago levels.
“There is a wide dispersion of inflation forecasts within EM countries, and some central banks are moving more aggressively to tighten policy. Russia, Brazil, Ukraine and Turkey are examples of where central banks have already hiked rates this year to help control inflation.
“The real interest-rate differential between developed and emerging markets suggests EM debt is now offering attractive value. But we believe capitalizing on those opportunities will require strong fundamental knowledge of each country's economics, and how relative inflation scenarios are likely to play out in the months and years ahead.”
AUTHOR
Chris Dastoor
Recommended for you
The merger with L1 Capital will “inject new life” into Platinum, Morningstar believes, but is unlikely to boost Platinum’s declining funds under management.
More than half of the top 20 most popular shares bought by advised investors during the first half of 2025 were ETFs, according to AUSIEX data.
At least two-thirds of ETF flows are understood to be driven by intermediaries, according to Global X, as net flows into Australian ETFs spike 97 per cent in the first half of 2025.
Inflows for the first half of 2025 for GQG Partners stand at US$8 billion, but the firm has flagged fund underperformance could be a headwind for future flows.
