Market review

In September 2022, hard-currency emerging market debt1 returned -6.36%, while local-currency emerging market debt2 returned -4.87%. On a year-to-date basis, hard-currency emerging market debt has returned -23.95%, while local-currency emerging market debt has returned -18.57%. For some broader cross-asset perspective, US equities, as measured by the S&P 500 index, were down by -23.87% year-to-date as of end-September.

In the case of hard-currency emerging market debt, the biggest negative driver was a significant increase in US Treasury yields, with the 10-year yield rising by 64 basis points (bps) to 3.83% by the end of September. At one stage of the month, the 10-year Treasury yield exceeded 4%, which was the first time this had happened since 2010. Higher Treasury yields in the US and bund yields in Europe are being driven by high inflation, which central banks are seeking to tame by raising interest rates aggressively to weaken demand. This will inevitably a have pronounced adverse impact in terms of global growth. There was also a negative impact from spreads widening by 58bps to 559bps over Treasuries for the JP Morgan EMBI Global Diversified Index.

In the case of local currency debt, the negative return for the month reflected both unfavourable emerging market currency movements against a generally strong US dollar, and to lesser extent a negative contribution from bond prices. In the commodity space, Brent crude fell by a sizeable 8.8% to US$87.96 per barrel over the month, as the market continued adjusting for a less favourable global growth outlook.


While the short-term economic outlook remains challenging across risk assets, we feel a lot of this may now be priced in. Indicative of this, the yield on the hard currency JP Morgan EMBI Global Diversified Index rose to 9.57% by end-September, an increase of well over 4 percentage points since just the end of 2021. The current yield level is also now far above the 20-year average of 6.4%. Likewise, in the case of the local currency JP Morgan GBI-EM Global Diversified Index, the yield rose to 7.31% by the end of September, up from 5.72% at end-2021, and well above the long-term average of 6.5%. However, we do expect volatility to persist in the coming months owing in large part to continued aggressive policy tightening in developed markets. In this context, while the overall valuation picture is much improved, we think a highly selective investing approach remains sensible at the present time.

  1. As measured by the JP Morgan EMBI Global Diversified Index
  2. As measured by the JP Morgan GBI-EM Global Diversified Index (unhedged in US dollar terms)