What were the major recent events and what were the impacts on your asset class?
I think the big thing for emerging markets has been less what's going on in our backyard as developments in the bigger economies. So we've had weakness in Europe. We've had this weakness in the US Treasury market even as the economy itself has plugged away reasonably well and a bit of a wobble in China. And those really haven't been great for emerging markets. When China is weak, commodity prices struggle. That's bad for the commodity exporters, whereas the selloff in US yields has driven up yields everywhere else, which means that bonds haven't really performed either. It's been a very difficult year so far.
What can your asset class offer in the current environment?
What I think EM debt can offer is that we don't have the huge pile up of debt that we see in the developed world. I think a big reason for the selloff in bonds in the core markets is this idea that we've got a huge amount of debt and huge deficits going forward. Generally, balance sheets in emerging markets are in better shape. So I think there's some scope for outperformance on the back of that.
What’s your outlook in the near and medium term?
I think we're in reasonable shape cyclically. I think our concern is that the whole movement in yields, especially in the developed world, has been driven by more structural, non-cyclical fiscal considerations. And until that's addressed, I think it's going to be a volatile environment and one where we maybe want to keep our boats close to shore. In the medium term, I think EM fundamentals, not all emerging markets, but significant number, do offer opportunities to get away from problems which are in place pretty much across the whole of the developed world.
Is there one chart you’re currently monitoring closely?
The slight problem we have is that the stuff that matters to us most at the moment is happening in the developed world, not in EM. So while it might seem kind of out of our backyard, I think watching what happens to say the yield on the 10-year Treasury, and especially the real 10-year yields in the US, is probably the most significant variable in the financial world at the moment.
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