Emerging markets external debt includes US dollar-denominated sovereign and quasi-sovereign bonds issued by countries that are identified by the World Bank Group as being “low income economies” or those included in the J.P. Morgan Emerging Market Bond Index (EMBI). Since the launch of the J.P. Morgan EMBI in the early 1990s, the coverage of countries tracked by the index has expanded from just ten to now more than 70 for the J.P. Morgan EMBI Global Diversified, the most widely used index for this asset class.
The evolution of the asset class has been supported by a secular trend toward greater stability and improving credit fundamentals of EM countries, which have grown significantly over the past several decades — both in terms of economic progress, as well as advancements in the strength of their institutions. Better monetary and fiscal policies in many EM countries have led to better economic management. This, in turn, has helped to improve capital reserves that allow EM countries to address short-term issues more effectively than in the past and increase their ability to repay debt. Importantly, EM countries as a whole have grown more resilient to external shocks, with a greater ability to navigate defaults, geopolitical tensions, and volatility in oil and other commodity prices.
Emerging markets debt offers strong attractive risk-adjusted return potential for investors who seek to take advantage of a broad investment opportunity set characterized by the following:
- Faster growth and often lower debt levels compared to their developed markets counterparts
- Increasing populations and rising middle classes, leading to expanded opportunities over the next several decades
- Relatively low inflation due to the adoption of sophisticated monetary and fiscal policies, including inflation targets set by independent central banks
- Higher real yields in most cases than developed markets, providing opportunity for higher income in a low-rate environment
Stone Harbor’s demonstrated ability in managing emerging markets debt is rooted in team work with a 30-year history, a disciplined research and investment process, and the experience to make sound investment judgments. Among the most experienced in emerging markets debt investing since 1990, we believe our portfolio management team has one of the longest running track records in the asset class.
Stone Harbor offers this strategy on a segregated account basis or through commingled funds.
In addition to the core strategy, which invests across the universe of emerging markets opportunities, the strategy can also be managed with specific duration targets and can be tailored as either an investment grade or non-investment grade only portfolio.