Emerging markets (EM) central banks hiked early and large, and we believe U.S. sanctions are backfiring and undermining developed markets (DM) currencies in favor of EM commodity-based currencies. Additionally, fire-sale levels of high-beta EM credit spreads in USD have enabled us to accumulate in July. This is yet another reason why, following the devastation of the first half of 2022, we have adopted a bullish position on EM debt.
The Emerging Markets Bond Fund (the “Fund”) was up 2.87% in July, compared to 1.59% for its benchmark. July’s 128bp of outperformance brings YTD outperformance to 412bp. Year-to-date, owning no Russia, navigating Ukraine and not keeping our duration view on “autopilot” drove performance, as did the Fund’s exposures to high-beta EMFX, particularly South Africa, Colombia, Brazil, Chile, Mexico and Poland. For detailed Fund performance and EM debt outlook, download the commentary.
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Originally published by VanEck on 23 August 2022.
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Duration measures a bond’s sensitivity to interest rate changes that reflects the change in a bond’s price given a change in yield. This duration measure is appropriate for bonds with embedded options. Quantitative Easing by a central bank increases the money supply engaging in open market operations in an effort to promote increased lending and liquidity. Monetary Easing is an economic tool employed by a central bank to reduce interest rates and increase money supply in an effort to stimulate economic activity. Correlation is a statistical measure of how two variables move in relation to one other. Liquidity Illusion refers to the effect that an independent variable might have in the liquidity of a security as such variable fluctuates overtime. A Holdouts Issue in the fixed income asset class occurs when a bond issuing country or entity is in default or at the brink of default, and launches an exchange offer in an attempt to restructure its debt held by existing bond holding investors. Carry is the benefit or cost for owning an asset.
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