Emerging markets are not all alike

By Enzo Puntillo, manager of the JB Emerging Markets Opportunities Bond Fund at GAM

“Many investors currently view emerging markets as one allocation, but substantial divergence in macroeconomic developments is creating a myriad of fixed income opportunities. Investors should resist the temptation to oversimplify the emerging market universe or risk missing out on potential opportunities from individual countries going through different stages in their respective business cycles.

“One of the key reasons for the divergence lies in the desynchronised credit cycles among both emerging and developed countries in the years since the financial crisis. Desynchronized credit cycles have created diverging economic cycles and monetary policies, with huge implications for interest rates, credit spreads and currency movements across the emerging world.

“This divergence can be clearly seen in the progress of external rebalancing. Eastern European countries are most advanced in this respect, with credit flowing back into their economies, benefiting growth over the long term. Chile is also making good progress, with its current account balance now close to zero as a result of successfully reducing imports. This is particularly noteworthy as the country has had to overcome the headwind of lower commodity prices.

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