The Franklin Templeton Fixed Income team provide an update on performance and drivers for the sovereign emerging market debt asset class this year.
Preview
This paper provides an update on performance and drivers for the sovereign emerging market debt (EMD) asset class this year. The final sections lay out the main improvements and strengths that we believe will allow EMD to navigate these troubled times, proving the asset class’s resilience again. These include improving balance of payments due to high commodity prices, decisive central bank policy, robust growth outlooks and better managed debt stocks. This should, in our view, combine with attractive relative valuations for sovereign EMD versus other fixed income asset classes to protect against near-term risks and enable a subsequent recovery from its current stressed state.
What are the risks?
All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline. Special risks are associated with investing in foreign securities, including risks associated with political and economic developments, trading practices, availability of information, limited markets and currency exchange rate fluctuations and policies; investments in emerging markets involve heightened risks related to the same factors. Sovereign debt securities are subject to various risks in addition to those relating to debt securities and foreign securities generally, including, but not limited to, the risk that a governmental entity may be unwilling or unable to pay interest and repay principal on its sovereign debt. To the extent a strategy focuses on particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks of adverse developments in such areas of focus than a strategy that invests in a wider variety of countries, regions, industries, sectors or investments. China may be subject to considerable degrees of economic, political and social instability. Investments in securities of Chinese issuers involve risks that are specific to China, including certain legal, regulatory, political and economic risks.
The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio. Factual statements are taken from sources considered reliable, but have not been independently verified for completeness or accuracy. These opinions may not be relied upon as investment advice or as an offer for any particular security. Past performance does not guarantee future results.