Emerging Markets Debt May Lift Performance Potential for Australian Investors

By Joyce Huang, CFA - October 2019

Key Takeaways

• Emerging markets debt (EMD) is a large, diverse and complex asset class. It’s comprised of divergent economies, return drivers and credit profiles that behave differently in various markets.
• Overall, EMD has offered attractive yield and risk-adjusted performance potential, better credit-quality profiles than high-yield developed market credit, and low correlation to other asset classes.
• We believe these distinctive characteristics make EMD an important asset allocation component, particularly in today’s environment of unusually low developed markets interest rates.
• For Australian investors, the benefits may be even more compelling, largely due to the negative correlation between EMD and Australian assets.
• We believe an unconstrained strategy that dynamically manages local and external allocations, currency exposure and hedging can deliver attractive risk-adjusted performance to Australian investors.