Emerging market (EM) funds become less attractive

Wed, 11/20/2024

by Ellie LeTu

Source: WSJ

• Stronger US dollars increases outflows from EM funds

  • Investors have withdrawn $5B from EM bonds since the presidential election.

  • The EM Local Bonds Index has declined by 1% in returns this year.

  • The US dollar has strengthened by 4% against a basket of other currencies.

• EM central banks on the defensive

  • Dollar-denominated EM bonds are seeing rising interest rates.

    • As the U.S. dollar strengthens, repayment costs for these bonds increase, putting pressure on EM economies to meet their debt obligations.

  • Decline in EM exports demand makes investors turn away from EM countries.

• Debate on the impacts of higher tariffs on EM bonds

  • EM market should remain attractive for its high-yield potential.

  • EM bonds are still a valuable tool for portfolio diversification, balancing risk and return.