Viewpoints

Staying Selective in Emerging Markets Debt Investing

Get our take on why the higher-quality segment of emerging markets debt looks attractive, and how complexities in EM high-yield bonds may also present opportunities.

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Text on screen: Pramol Dhawan, Head of Emerging Markets Portfolio Management

Recorded 16 August 2022

When we look at the data, just by allocating to the higher yield component would return investors materially worse information ratios as well as higher correlations to equities and larger drawdowns.

In fact, it’s the higher quality segment across the emerging markets which has proven to be more resilient in downturns and actually offers the best risk adjusted returns. In order to be able to distinguish between risk and uncertainty, PIMCO has developed what we call a black hole risk framework. This seeks to identify those most troubled issuers and help us to avoid credit impairments and defaults amongst those names which are often popularly held.

Text on screen: For more insights and information, visit pimco.com

Text on screen: PIMCO

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All investments contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed.  High-yield, lower-rated securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets.  Equities may decline in value due to both real and perceived general market, economic and industry conditions. Diversification does not ensure against loss.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision. Outlook and strategies are subject to change without notice.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

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CMR2022-0822-2391818

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