Executive Summary
As we enter 2019, our valuation metrics for external emerging debt reveal an asset class that is much more attractive than it has been in recent years, due in large part to a significant sell-off in sovereign credit spreads in the fourth quarter of 2018. Local market debt sharply outperformed external debt during the quarter, which impacted relative valuations between the two asset classes. However, emerging currencies remain at the cheap end of our neutral range. As for local rates, while the gap between the emerging and developed markets real yields remains wide, emerging real yields fell below their historical average, due to a sharp rally in the fourth quarter.
In this piece, we update our valuation charts, and provide our readers with some small changes in methodology that we have adopted. (See the Appendix for more detail.)
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