Manulife Investment Management, in its most recent note to investors, is taking a closer look at emerging market (EM) debt and the impact turmoil and monetary policy around the world is having on the asset class.
“The impact of unprecedented global central bank policy is now evident, dampening inflation but also highlighting potential areas of concern,” they write in the firm’s most recent update, entitled As market conditions tighten, can emerging-market debt weather the storm?
They say financial contagion remains a concern following the collapse of lenders in the United States, and turmoil is increasing the probability of a U.S. recession. “Against this backdrop, we feel it necessary to take a closer look at EM debt, assessing whether the asset class might be vulnerable considering these events.”
In addition to global policy, the report looks at currencies and debt-to-GDP ratios. Some countries, they add, are more vulnerable to tighter financial conditions than others. Credit rating downgrades have outnumbered upgrades, momentum which is expected to continue throughout the year, but they add that outlook revisions have tended to be positive.
“Looking ahead, we believe that financial markets will continue to operate against a challenging economic backdrop,” they conclude. “Our assessment indicates that many emerging markets are sufficiently equipped to weather what lies ahead.”
