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Our latest edition of the Schroders Emerging Markets Lens is now available.
Below is a summary of key developments in the equity and debt markets and you can find the links to both presentations here:
Emerging Markets Lens: Emerging Market Debt
Summary of emerging market equities:
- Emerging market (EM) equities fell -4% in November and underperformed DM (+5%). EM came under pressure after US elections, as markets priced a more reflationary policy outlook; US bond yields rose and the dollar strengthened.
- EM is up 8% YTD as at 30 November, lagging DM, which is up 22%. However, DM performance is underpinned by the US. EM is more competitive versus other major DM (slide 15).
- US policy under the Trump administration is expected to support further US exceptionalism, at least in the short-term. Potential trade tariffs are another risk, but exposure varies by market for EM (slide 7).
- Headline EM valuations have picked up but are not significantly extended versus history. In fact, many EM are cheap versus their own history; larger markets skew the aggregate somewhat. (Slides 24-31)
- The EM valuation gap to DM is at its widest level in 20 years on a 12-month forward price-earnings basis, even after adjusting for sector weights (slides 29-30). The valuation gap to the US is -44% and notably higher vs 2016 (slide 11).
- Read more: Outlook 2025: Equities
Summary of emerging market debt:
EM bonds were relatively resilient in November, despite renewed concerns around trade tariffs and the impact of more reflationary US policy under president-elect Trump.
Hard currency emerging market debt (EMD):
- Sovereign EMD has returned 8.1% YTD, as at 30 November; led by the high yield (HY) sub-index (slide 13).
- At 7.6%, the headline hard currency sovereign EMD yield remains elevated versus the last 15 years (slide 14).
- Despite stellar hard currency EMD performance in recent years, net outflows from the asset class persist (slide 6).
- The sovereign index spread has tightened significantly this year and is slightly below its historical median (slide 15).
- The sovereign IG sub-index spread is close to its lowest level since 2007, while HY is slightly cheap vs history. Both IG and HY EM corporate spreads remain below the historical median (slides 16 and 22).
Local currency EMD:
- Local EMD is down 0.5% in US dollar terms YTD, as at 30 November, with US dollar strength the key headwind.
- The average real yield premium of EM over DM has continued to trend higher YTD (slide 39).
- The average local EM ex Turkey yield curve is upward sloping (slide 38).
- Read more: Outlook 2025: Fixed Income
Charts of the month: EMD
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