Quarterly EM Debt Update | 1Q 2018

Emerging Debt Valuation Update: 1Q18

Executive Summary

We review some of our favored valuation metrics for external and local emerging debt markets.[1]

The punch line: In the first quarter of 2018, the local debt benchmark significantly outperformed the hard currency benchmark (+4.4% against -1.8%). The major explanation for the sharp difference in performance was that the USD continued to weaken (helping local debt returns) and US Treasury rates rose significantly (hurting hard currency returns). As a result, the relative cheapness of local debt markets, which looked extraordinarily attractive in early 2017, while still attractive, is less compelling than last year, or even the beginning of this year. That said, for euro-based investors, local debt markets look much more attractive than one year ago. Hard currency debt remains on the expensive side of its historical valuations. Hard currency valuations neither improved nor deteriorated during the first quarter.

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[1] For a more detailed explanation of the valuation metrics contained in this report, please refer to the Emerging Debt Report dated April 27, 2015. This may be obtained from your GMO representative.
Disclaimer: The views expressed are the views and understanding of Carl Ross through the period ending March 2018 and are subject to change at any time based on market and other conditions. While all reasonable effort has been taken to insure accuracy, no representation or warranty for accuracy is provided nor should be assumed. 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.
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