Global Fixed Income Strategy - September 2018

Monthly insights and updates from the Invesco Fixed Income team

Sep 27, 2018 | Invesco Fixed Income

Concerns over a generalized “crisis” in emerging-market (EM) external debt are largely unwarranted, says Invesco Fixed Income (IFI) in its latest monthly update. The team believes that there is value in EM now, though on a selected basis, and there is scope to add meaningful outright exposure when dollar-funding pressures ease.

This is because the recent volatility in EM is due to both idiosyncratic and exogenous factors. Concerns in Argentina and Turkey, for example, were due to a tightening in US financial conditions and its impact on their external liabilities. However, EM external assets have also grown faster than external debt. Estimates show that EM reserves (excluding gold) now stand at upwards of US$6 trillion (US$3 trillion ex-China). In aggregate, liquid EM foreign-exchange reserves can pay down all EM external debt.

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