Executive Summary
We review some of our favored valuation metrics for external and local emerging debt markets.[1]
The punch line: In the first quarter of 2018, the local debt benchmark significantly outperformed the hard currency benchmark (+4.4% against -1.8%). The major explanation for the sharp difference in performance was that the USD continued to weaken (helping local debt returns) and US Treasury rates rose significantly (hurting hard currency returns). As a result, the relative cheapness of local debt markets, which looked extraordinarily attractive in early 2017, while still attractive, is less compelling than last year, or even the beginning of this year. That said, for euro-based investors, local debt markets look much more attractive than one year ago. Hard currency debt remains on the expensive side of its historical valuations. Hard currency valuations neither improved nor deteriorated during the first quarter.
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