We have taken a positive view on Emerging Market debt for some time. Over the past few months, however, we tempered our enthusiasm as we balanced relatively attractive spreads against the implications of rising protectionism for trade-dependent economies. Market developments, however, are now leading us to change our view.  Valuations have become less attractive, even if our concerns regarding the macroeconomic backdrop for many markets have subsided.

Just over a year ago, global markets were unsettled by concerns over China’s decelerating growth. Investors focussed on the mounting leverage in the economy. Commodity prices plummeted. Relatively minor (albeit abrupt) changes to the currency basket were viewed as precursors to a devaluation. Many fretted over the declining foreign exchange reserves, and believed that a “hard landing” of the economy was inevitable. 

"Approximately USD 1.7m are lost forever", shared a wealthy entrepreneur with one of our partners. A few weeks earlier his Gmail account was hacked. The intruders had found old wire transfer instructions with the original signature of the account holder in the email archive, modified and resent them to the banks and thereby managed to send multiple large amounts to their offshore accounts. By the time the fraud was discovered the majority of the money was gone beyond recall.