Emerging Markets Local Currency Debt

Uncovering opportunities by capturing currency appreciation and high current yield potential in rapidly developing markets.

In our view, local currency sovereign debt is increasingly attractive as emerging markets economies mature through the adoption of sound fiscal and monetary policies. We believe improving credit quality and economic growth that are in excess of developed markets are the key drivers of both currency appreciation and lower local interest rates, which may translate into potential strong returns.

Designed to seek to optimize total return and generate alpha through careful country, currency and security selection, this strategy centers on fundamental credit analysis of countries – based primarily on their ability and willingness to repay debt – and their impact on currencies and interest rates.

Our in-depth country analysis includes an assessment of currency valuations, the interest rate environment and yield curves within each country. Important considerations include:

  • Economic factors impacting credit quality and trade flows
  • Factors impacting monetary policy and central bank independence
  • Technical factors impacting flows of funds into the currency

We believe sovereign credit quality is the key driver of local currency debt returns in the medium to long term.

The strategy is available as a broad portfolio that includes non-investment grade countries and as a pure investment grade emerging markets local currency debt portfolio. Our approach generally keeps our Emerging Markets Local Currency Debt portfolios in the BB+ to AA average credit quality range.