2017 Market Outlook - Emerging Markets Debt
-
Upload
t-rowe-price -
Category
Economy & Finance
-
view
434 -
download
2
Transcript of 2017 Market Outlook - Emerging Markets Debt
EMERGING
MARKETS DEBT Samy Muaddi, CFA
Portfolio Manager
November 17, 2016
2017 Global Market Outlook Press Briefing
2
Emerging Market Vulnerabilities Have
Structurally Declined
Developed Countries
Mainstream Emerging
Countries and Second-
Tier Countries
Frontier Emerging
Countries
3
Where Are We in the Cycle?
FOUR FACTORS TO CONSIDER
1 Fiscal
2 External
3 Social and Political
4 Private Sector
4
Sources: T. Rowe Price and International Monetary Fund.
1. Fiscal Vulnerabilities Are Less Evident
Across Emerging Markets (EM)
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
1990 1995 2000 2005 2010 2015
Mil
lio
ns—
US
D
HISTORICAL AMOUNT OF IMF
ASSISTANCE OUTSTANDING
Total IMF Loans Oustanding
Total Less Greece/Portugal/Ireland
20
30
40
50
60
70
80
90
100
110
120
130
2001 2003 2005 2007 2009 2011 2013 2015 2017(F)
2019(F)
% o
f G
DP
EM VS. G7 PUBLIC DEBT
2016–2019 forecast
Major Advanced Economies (G7)
Emerging Markets
5
Sources: T. Rowe Price and Haver Analytics.
Current account balance chart is based on countries as follows: Mexico, Indonesia, Russia, China, Turkey, Brazil, Venezuela, Colombia, Chile, Hungary, South
Africa, Kazakhstan, Lebanon, Peru, Poland, Ukraine, Panama, Malaysia, Bolivia, Costa Rica, Ecuador, Guatemala, Paraguay, Uruguay, Jordan, Oman, Egypt, India,
Pakistan, Vietnam, Ghana, Ivory Coast, Kenya, Morocco, Nigeria, Tunisia, Azerbaijan, Belarus, Georgia, Slovakia, Latvia, Serbia, Lithuania, Croatia, Romania,
Dominican Republic, Bahrain, Iran, Israel, Qatar, Saudi Arabia, United Arab Emirates, Palestinian Territories, Bangladesh, Korea, Macau, Thailand, Algeria,
Botswana, Mauritius, Uganda, Albania, Kyrgyz Republic, Bulgaria, Czech Republic, Estonia, Slovenia, Macedonia, Bosnia and Herzegovina, and Kosovo.
2. External Vulnerabilities Have
Cyclically and Structurally Adjusted
-3.5%
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1995 1998 2001 2004 2007 2010 2013 2016
CA
as
a P
erc
en
t o
f G
DP
(S
A,
%)
EM CURRENT ACCOUNT BALANCE—
FOUR-QUARTER ROLLING AVERAGE
0%
10%
20%
30%
40%
50%
60%
1995 1998 2001 2004 2007 2010 2013 2016
Ye
ar-
Ove
r-Y
ea
r C
ha
ng
e in
CP
I
EM INFLATION
6
As of September 30, 2016
Sources: T. Rowe Price and CRB Rates.
2. The Monetary Policy Response
Function Is Increasingly Unsynchronized
May 2005 – June 2006
Interest rates up
Interest rates down Interest rates up Interest rates stable
UK Eurozone
Russia
Australia
Canada
Philippines
South Korea
India
Indonesia
Mexico
U.S.
South Africa
2015
Brazil
77
cuts 66
hikes
Colombia
2016 YTD
58
cuts 31
hikes
ILLUSTRATIVE INTEREST RATE CYCLE
7
Source: Peterson Institute, January 2016.
3. Global Trends in Wealth Accumulation
Favor EM Consumption
0
10
20
30
40
50
60
70
80
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Gro
wth
Ra
te i
n P
erc
en
tag
e
Percentiles of the Global Income Distribution
CUMULATIVE INCOME GROWTH RATE SINCE 1990s
POORER RICHER
8
Sources: Images 1‒4 are public domain; Image 5: Creative Commons, www.kremlin.ru; Image 6: Creative Commons, Licurgo Miranda.
3. Markets Often Follow the Leader
UPCOMING CATALYSTS
China 19th party congress
Brazil pension reform
Venezuela resolution
Russian sanctions
African National Congress
(ANC) elective conference
Turkey constitution
Argentina parliamentary election
Ecuador general elections
Nigeria local elections
4
5
1
3
2
6
9
Sources: T. Rowe Price, J.P. Morgan, Bank of America, Fitch Ratings, and Bank for International Settlements (BIS).
*For bond issuers.
4. Private Sector Contingent Liabilities
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2008 2009 2010 2011 2012 2013 2014 2015 LTM
Net
Le
ve
rag
e (
ex
Rea
l E
sta
te a
nd
Defa
ult
s)
GLOBAL EM CORPORATE
NET LEVERAGE TREND*
EM Corp. Global
Asia
EM Europe
Latin America
Middle East/Africa
73%
13%
10%
4%
DISTRIBUTION OF EM CORPORATE
LEVERAGE BY SOURCE
Local Banks
Local Currency Bonds
BIS Claims
USD Bonds
10
As of December 31, 2015
Sources: T. Rowe Price and Haver Analytics.
4. China’s USD $30 Trillion Dollar Problem
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
GLOBAL EM LONG-TERM HISTORY
OF CREDIT TO GDP (%)
All EM Mean
South America Mean
Central America Mean
CEE Average
Africa Mean ex SOAF
Mideast Mean
Asia Mean
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
GD
P G
row
th/N
on
fin
an
cia
l P
riva
te S
ec
tor
Cre
dit
Gro
wth
EFFECTIVENESS OF CHINA’S
CREDIT EXPANSION WEAKENING
11
Where Are We in the Cycle?
FOUR FACTORS TO CONSIDER
1 Fiscal
2 External
3 Social and Political
4 Private Sector
12
Emerging Markets Offer a Compelling
Yield and Duration Profile
As of September 30, 2016
Sources: T. Rowe Price, Bloomberg Barclays, J.P. Morgan, and MSCI.
Returns are in U.S. dollar terms. Benchmarks: J.P. Morgan EMBI Global, J.P. Morgan GBI – EM global diversified; J.P. Morgan CEMBI Broad Diversified, Bloomberg
Barclays European High Yield, Bloomberg Barclays, U.S. High Yield, Bloomberg Barclays U.S. Corporate Investment Grade, Bloomberg Barclays European
Corporate Investment Grade, Bloomberg Barclays U.S. Aggregate – U.S. Treasury; Bloomberg Barclays Global Aggregate ex U.S., Bloomberg Barclays Global
Aggregate – German bund; Bloomberg Barclays Global Aggregate – Japanese government bond.
U.S. Treasuries AAA
U.S. IG Corporates A-
U.S. High Yield B+
EM Sovereign Hard Currency
BB+ EM Corporate
BBB-
EM Sovereign Local Currency BBB+
International Bonds Euro IG Corporate
A-
Euro HY BB
JGB A+
Bunds AAA
-2
0
2
4
6
8
3 4 5 6 7 8 9 10 11
Yie
ld (
%)
Duration (Years)
With more than USD $10 trillion in developed market sovereign debt offering negative yields,
emerging markets provide an attractive yield and duration profile alongside a history of
compelling long-term risk-adjusted returns.
13
Emerging Markets Still Offer
Relative Value
As of October 31, 2016
Sources: T. Rowe Price and J.P. Morgan.
Major developed USD bond yields represented by the average of U.S., Germany, Japan, UK 5 and 10-year yields.
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Yie
ld D
iffere
ntia
l (%)
Yie
ld t
o M
atu
rity
(%
)
EM VS. DEVELOPED SOVEREIGN YIELD HISTORY
Differential (R)
EM Sovereign Bond Yields in USD
Average of Major DM Government Bond Yields
14
Important Information
This material is being furnished by T. Rowe Price for general informational purposes only. Under no circumstances should the content, in whole or in part, be copied
or redistributed without consent from T. Rowe Price. The material does not constitute a distribution, an offer, an invitation, recommendation or solicitation to sell or
buy any securities in any jurisdiction. The material has not been reviewed by any regulatory authority in any jurisdiction. The material does not constitute advice of
any nature and prospective investors are recommended to seek independent legal, financial, and tax advice before making any investment decision.
The views contained herein are as of November 2016 and may have changed since that time.
Past performance cannot guarantee future results.
Australia—Issued in Australia by T. Rowe Price International Ltd (ABN 84 104 852 191), Level 50, Governor Phillip Tower, 1 Farrer Place, Suite 50B, Sydney, NSW
2000, Australia. T. Rowe Price International Ltd is exempt from the requirement to hold an Australian financial services licence in respect of the financial services it
provides in Australia. T. Rowe Price International Ltd is authorised and regulated by the UK Financial Conduct Authority under UK laws, which differ from Australian
laws. For Wholesale Clients only.
Canada—Issued in Canada by T. Rowe Price (Canada), Inc. T. Rowe Price (Canada), Inc.’s investment management services are only available to Accredited
Investors as defined under National Instrument 45-106. T. Rowe Price (Canada), Inc. enters into written delegation agreements with affiliates to provide investment
management services.
DIFC—Issued in the Dubai International Financial Centre by T. Rowe Price International Ltd. This material is communicated on behalf of T. Rowe Price International
Ltd by its representative office which is regulated by the Dubai Financial Services Authority. For Professional Clients only.
EEA—Issued in the European Economic Area by T. Rowe Price International Ltd, 60 Queen Victoria Street, London EC4N 4TZ which is authorised and regulated by
the UK Financial Conduct Authority. For Professional Clients only.
Hong Kong—Issued in Hong Kong by T. Rowe Price Hong Kong Limited, 21/F, Jardine House, 1 Connaught Place, Central, Hong Kong. T. Rowe Price Hong Kong
Limited is licensed and regulated by the Securities & Futures Commission. For Professional Investors only.
Singapore—Issued in Singapore by T. Rowe Price Singapore Private Ltd., No. 501 Orchard Rd, #10-02 Wheelock Place, Singapore 238880. T. Rowe Price
Singapore Private Ltd. is licensed and regulated by the Monetary Authority of Singapore. For Institutional and Accredited Investors only.
Switzerland—Issued in Switzerland by T. Rowe Price (Switzerland) GmbH ("TRPSWISS"), Talstrasse 65, 6th Floor, 8001 Zurich, Switzerland. For Qualified
Investors only.
USA (public)—Issued in the USA by T. Rowe Price Associates, Inc., and by T. Rowe Price Investment Services, Inc., 100 East Pratt Street, Baltimore, MD, 21202.
T. ROWE PRICE, INVEST WITH CONFIDENCE and the Bighorn Sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price
Group, Inc. in the United States, European Union, and other countries. This material is intended for use only in select countries.
77277
THANK YOU.