Payden & Rygel: Constructive on the outlook for EMD
By Kristin J Ceva, Managing Director: Emerging Market Debt, Payden & Rygel
We find that investors are increasingly looking beyond the US – and the US dollar – under a baseline where the Fed is set to resume its rate-cutting cycle.
Our view is that fundamentals in emerging markets debt (EMD) are sound, positioning the asset class for resilience. Credit ratings of emerging market countries have been on an improving trajectory for two straight years. Inflows are the strongest in three years, with dedicated funds drawing renewed interest and crossover investors growing their allocations.
Against this backdrop, we are constructive on the outlook for EMD and taking advantage of the diversification available in the sector. Our core portfolio convictions center on:
- EM local rates: Supported by contained inflation, looser financial conditions, and room for further central bank easing.
- EM currencies: Underpinned by high real yields, solid balance-of-payments, stretched USD valuation, and USD hedging by global investors.
- High-yield credit: Offering compelling all-in yields, lower interest-rate duration and favorable technicals.
As always in EMD, country-specific dynamics matter; we are monitoring risks closely and expressing positions selectively.