CONTRIBUTORS
Michael Hasenstab, Ph.D.
Chief Investment Officer, Templeton Global Macro
Calvin Ho, Ph.D.
Senior Vice President, Portfolio Manager, Director of Research, Templeton Global Macro
Executive summary:
- Foundational improvements in market structure and policy frameworks have strengthened emerging markets’ (EM) resilience to external shocks. As many EM countries have adopted more prudent monetary and fiscal policies, they are also increasingly distinguishing themselves from major advanced economies.
- In our view, treating EM debt primarily as a tactical allocation is increasingly disconnected from the maturation and resilience of the asset class. While EM debt should not necessarily become the single core building block of a portfolio, we see merit in considering it as a structural component of a long-term, diversified investment strategy.
- Within the context of a broader portfolio, EM debt exposure can provide consistent yield advantages and distinct return drivers to support income generation and portfolio diversification. However, heterogeneity across countries makes an active, country-by-country approach critical.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Asset-backed, mortgage-backed or mortgage-related securities are subject to prepayment and extension risks.
Equity securities are subject to price fluctuation and possible loss of principal.
Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls.
Floating-rate loans and debt securities are typically rated below investment grade and are subject to greater risk of default, which could result in loss of principal.
Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default.
There is no assurance that any estimate, forecast or projection will be realized.
WF: 10603809