While we are constructive on the prospects for emerging markets in the year ahead, we think the real potential lies in individual country and thematic opportunities.
With a patchwork of lenders now willing to provide financing on noncommercial terms to countries in distress, “moral hazard plays” have proliferated in emerging markets.
Earlier this year, Argentina, the Czech Republic and Uruguay joined the bellwether benchmark for the asset class, JPMorgan GBI-EM Global Diversified, taking the total to 18 countries. China, Egypt and another three countries may enter the index next year. The inclusions will make the EM local debt asset class much larger, deeper and more liquid.
Turkish asset prices have come under heavy pressure recently, and the Turkish lira fell to a record low against the U.S. dollar in January.