A slew of factors are hampering emerging markets bond funds, including the iShares J.P. Morgan USD Emerging Markets Bond ETF (NASDAQ: EMB), this year. One region in particular could be problematic for those funds in 2019.

EMB tracks the J.P. Morgan EMBI Global Core Index, a market-cap-weighted index. Potential investors should note that since it is a cap-weighted index, countries with greater debt will have a larger position in the portfolio. EMB, the largest emerging market fixed income exchange traded fund, is down more than 10% this year.

“Negative rating pressures emerged in several Latin American countries in 2018, and tightening external financing conditions, lukewarm and uneven growth, and persistent fiscal challenges and political risks will continue into next year,” said Fitch Ratings in a recent note.

Four of EMB’s top nine geographic exposures are Latin American countries. That quartet is comprised of Mexico, Brazil, Colombia and Argentina. Five other Latin American countries are represented in the $14.97 billion ETF.

What’s Next

“Six sovereigns in the region are currently on Negative Outlook/Watch (Argentina, Aruba, Costa Rica, Mexico, Nicaragua and Uruguay) versus three at the end of 2017. By comparison, only two have Positive Outlooks (Jamaica and Paraguay),” said Fitch. “In addition, we do not expect any speculative-grade sovereigns to reach investment grade in 2019. We expect the resolution of Venezuela’s default to take a long time.”

Several emerging markets have been subject to credit rating downgrades or bearish outlook revisions this year. For example, Fitch downgraded Argentina’s credit rating while issuing two downward outlook revisions on embattled Turkey.