2019 saw headlines of looming debt defaults from Argentina to Lebanon. Protests in countries from Hong Kong to Bolivia raised concerns among investors over investment risk.
In addition, the bonds of countries including Ecuador, Tajikistan and Zambia are now trading, rightly or wrongly, at distressed levels. In short, there was extreme dispersion within emerging market debt markets.
In 2020, it seems reasonable to expect a broadly supportive environment, albeit again with considerable country dispersion. EM sovereign default rates will likely continue to rise in 2020.
A close focus on assessing issuers on the basis of strict environmental, social and governance (ESG) criteria can continue to help protect investors from pitfalls and produce long-term sustainable returns. This, combined with a mix of top-down asset allocation and bottom-up credit screening, has proven to be an effective and incisive process.
Macroeconomic outlook: Expect the strong US/weak EM cycle to reverse in 2020
The past few years have seen a period of stronger US growth amid a downturn in the rest of the world, including emerging markets.
In 2020, this trend should finally reverse, with the US slowing as fiscal stimulus subsides and politics dominate during a contentious presidential election cycle.