As currency volatility picks up, investors in emerging market debt, whether sovereign or credit, will benefit from active approaches to managing their investments.
For much of the past decade, cheap central bank money has helped to suppress market volatility, not least in currency markets. But following a spike in inflation, central banks have had to tighten policy considerably. As a consequence currency volatility looks set to pick up, with dollar-sensitive markets particularly vulnerable to gyrations.
Given that much of their borrowing tends to be in dollars even as corresponding obligations are in their own currencies, emerging market sovereigns and corporate borrowers have tricky seas to navigate. That puts the onus on investment managers to be nimble in response to suddenly changing currents and winds. Active investment management becomes even more important in these conditions, argue Mary-Therese Barton, head of emerging market fixed income, and Alain Nsiona Defise, head of emerging markets – corporate.