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Is the long-term case for emerging market debt still intact?
Kirstie Spence
Portfolio Manager
Koon Chow
Investment Analyst

2022 was a difficult year for fixed income in general, including emerging market debt, amid high inflation and aggressive rate hikes by central banks. While the global backdrop remains a headwind for emerging markets, relatively strong macroeconomic fundamentals in the major EM countries, combined with high starting yields and undervalued exchange rates within local currency debt should provide a buffer to any further volatility. As the chart below shows, two-year returns have been historically positive when yields reach 6.7% or higher.


EM yields may indicate an attractive entry point
Medium term (2-year) forward return when EM yields have peaked above 6.7%

EM yields may indicate an attractive entry point

Past results are not a guarantee of future results.
Data as at 28 February 2023 in USD terms. Yield-to-worst (YTW) and forward returns callouts shown are for 50% JPMorgan EMBI Global Diversified Index / 50% JPMorgan GBI-EM Global Diversified Index. Callout dates for >6.7% yield shown: May 2010, September 2015, December 2015, October 2018, November 2018 and December 2018. Forward returns based on annualised returns. Sources: Bloomberg, JPMorgan, Morningstar

Moreover, it is helpful to remember that while the current volatility in the markets can feel overwhelming, EM debt has developed into a large and diversified universe, with various instruments available to investors to position for various risks. As was the case with the Russia-Ukraine war, investors were able to rotate their portfolios towards less impacted regions and the same can be done around the current banking sector volatility. 



Kirstie Spence is a fixed income portfolio manager at Capital Group. She has 27 years of investment industry experience, all with Capital Group. She holds a master’s degree with honours in German and international relations from the University of St. Andrews, Scotland. Kirstie is based in London.

Koon Chow is a fixed income investment analyst at Capital Group with research responsibility for China and emerging Asian sovereigns focusing on both eurobond and local currency instruments. He holds a master's degree in economics for development from Oxford University and a bachelor's degree in economics from Cambridge University. Koon is based in Singapore.


Past results are not a guarantee of future results. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.

Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.