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The End of EM Local Debt? (2024 Update)

What's wrong with local debt? EM local debt markets have steadily lost foreign share over the past decade, while equity positioning has been far more stable. What's going on?

Part of the answer is the inherent bias against local debt returns in EM given structural gaps between interest rates and nominal growth, gaps that become much more evident during periods of global malaise - and part of the answer is the fact that EM also has much fatter "extreme" tail risks than equities.

Unfortunately, we don't see a reversal of the fading trend ahead, given our expectations for weak DM growth, flat or falling commodity prices and high global rates ahead.

However, we also don't believe the asset class is "on the way out" completely, and continue to find plenty of value in individual EM markets.

The End of EM Local Debt? (2024 Update)

Monthly Chartbook

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