EMD: Time to switch from capital gain to coupon-clipping strategies

Emerging market debt has gained more than 15% in 2016, outperforming all other major asset classes and markets, and confounding the roundly pessimistic expectations at the start of the year.

Ten months on, anticipated events that might have been negative for emerging markets, such as a series of expected US interest rate rises, have failed to transpire. China's predicted 'hard landing' has not happened either and some now forecast emerging market growth to accelerate next year. After such remarkable performance, we believe it is time to switch from capital gain to coupon-clipping strategies while we wait for valuations to improve, focusing on short-duration securities in anticipation of the effects of a US rate rise this year or early next. We believe such an approach cou...