Insights | January 07, 2019

Crisis and Opportunity in Emerging Market Debt

Executive Summary

Emerging market sovereign debt in U.S. dollars can offer strong returns for investors who can ride out periodic bouts of volatility caused by concurrent crises in one or more countries. Crises, though real and frequent, are not typically as destructive to a country’s fundamentals as observers imagine. When crises drive valuations to over-discount changes to long-term country fundamentals, it can be an attractive time to buy emerging sovereign debt. We believe today, following the recent 100-bps widening in sovereign spreads, is one of those times. Further, we believe that our low-turnover, value-oriented strategy can generate alpha above the base case.

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Disclaimer: The views expressed are the views of Carl Ross through the period ending January 2019, and are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Forward‐looking statements based upon the reasonable beliefs of the Emerging Debt team and are not a guarantee of future performance. Forward‐looking statements speak only as of the date they are made, and GMO assumes no duty to and does not undertake to update forward‐looking statements. Forward‐looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. Actual results may differ materially from those anticipated.
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