The forces driving emerging market debt returns

Emerging market (EM) local currency debt looks set to extend gains in early 2020, as contained trade war fears and ample liquidity sustain investors' hunt for yield.

Various accommodative elements could drive the asset class, ranging from long-term growth to carry, real yield and currency appreciation. However, investors looking to invest in this space may want to hedge their exposure, as any upside surprise could limit the potential of EM debt local currency returns. As announced by the US Federal Reserve and the European Central Bank, balance sheet expansion is resuming in an effort to prop up and expand the cycle further. Against this backdrop, the lower inflation environment in EM has allowed many of its central banks to ease financial cond...