Why investors should not be put off by EM debt anomalies

Emerging market fixed income has been one of the best performing assets classes of 2016 and this can be seen from improving industrial production and PMI indicators, showing that emerging economies are once again widening the gap to industrial countries.

As the year has progressed, the outlook for this sector has become even more benign: market fears have dissipated, rates remain low, and commodity prices have stabilised. Most important of all, after years of economic deceptions, we see more and more positive surprises that can only result in a changing of perception and increased inflows to the asset class.  The emerging market debt market exhibits many anomalies, often overreacting to events before calm is once again restored. By maintaining a bias for quasi-sovereigns and avoiding lower-rated issuers, which may be subject to forced...