Chinese debt market performed well
Although one might think the opposite, the Chinese debt market actually has performed very well last year, which could continue in 2016.
An important reason is the attractive technical picture, as due to the change in expectations from currency appreciation to depreciation, there is more demand for US dollar bonds and less supply.
The whole Asian region is seen as a safe haven by bond investors, as the region is relatively insensitive to commodity prices and is also lacking political instability.
Latin America, on the other hand, has suffered a lot due to its commodity sensitivity and political issues.
Valuations have become very attractive and once commodities show signs of stabilisation, investors may start looking for value opportunities there.
Politics will keep playing a role in the region, as Brazil keeps muddling through and the fiscal position further deteriorates.
We keep looking at Brazil closely, as a change in the political situation can unlock many opportunities. Argentina is a nice example of a government change in a positive way.
The country is opening up again for investors which will entail a lot of opportunities.
Current preferences in EMD
We currently have a relative preference for hard currency debt over local currency debt. Within hard currency we prefer sovereign bonds over corporate bonds.
Despite the challenging environment, expected returns for 2016 range from low positive single digit for EMD local bonds and Asian HC debt to 6% or more for EMD HC, EM corporate bonds and Asian high yield bonds.