External tailwinds support commodity producers, while easier financing conditions helped importers.

The electoral calendar in 2024 is the busiest in history which could lead to volatility.


Figure 1: Emerging Market Yields

As of April 1, 2024

Source: JP Morgan GBI-EM Global Diversified Index, J.P. Morgan EMBI Global Index
It is not possible to invest directly in an index. Please see disclosures at the end of this document. Past performance is not indicative of future results

Emerging markets had a strong start to 2024, posting positive total returns despite significant headwinds from the move higher in US interest rates. Emerging market countries and corporates with lower ratings performed particularly well with spread compression occurring across regions and market segments. Investors in the asset class enjoyed a tailwind from narrowing risk premiums, which more than offset the move higher in US interest rates. The first quarter also saw a plethora of issuers tapping primary markets, initially confined to investment grade rated countries and corporate issuers. Later in the quarter a notable thaw occurred to meet investor appetite for higher yielding sovereigns. An excellent example was the inaugural US-dollar denominated bond issue from the Republic of Benin, followed shortly thereafter by neighbouring Ivory Coast, a more frequent issuer usually in euros, who also opted for a rare foray into the US-dollar market.  

The commodity price environment remains supportive for many emerging markets. For example, steadily rising oil prices have buoyed the current accounts of oil exporters, while rallying copper prices in March brighten the outlook for producers in Chile and Zambia. However other industrial commodities softened, for example iron ore and some metals, which suffered from softer Chinese demand. Agricultural commodities were mixed with wheat and soybeans weaker, while a spectacular surge in cocoa prices should soon yield a windfall for producers in West Africa, to the detriment of chocolate lovers worldwide. Despite the generally supportive environment for many emerging market commodity exporters, current price levels don’t seem to be causing importers significant problems, as financing conditions have eased materially. However we monitor global trade developments carefully, as shipping costs have seen a modest increase recently owed to disruptive attacks by Houthi rebels in the Red Sea and  low water levels in the Panama Canal. Longer journeys around the Capes of Good Hope and Horn paired with higher oil prices could be worrying; but put into context, the rise in current shipping costs pales in comparison with the post-Covid period despite the recent increase (Figure 2).


Figure 2: Freight Costs

As of February 1, 2024

Source: Hamburg Shipbrokers Association and China Ministry of Transport

Economic growth in emerging markets has been stronger than market participants anticipated and with recession fears in developed markets also fading, risk premiums for emerging market issuers contracted. And while the move higher in US interest rates was partly a result of reversing previously priced-in US Federal Reserve interest rate cuts, markets are still anticipating a lowering of the policy rate in the United States later in 2024. If this view solidifies and markets price in a benign path for interest rates globally, absolute yield levels should provide a strong platform for returns in emerging bond markets. Furthermore, a more optimistic outlook for growth has raised the prospect of a supportive environment for capital flows into emerging markets.

The electoral calendar is particularly busy in 2024 with an estimated 4.2 billion citizens potentially facing a change in political leadership via the ballot box. The elections that have taken place so far have shown that political risks can lead to heightened volatility in their run-up and aftermath. This happened for example in Pakistan in February, where despite a significant protest vote and a messy vote count, the two most prominent families joined forces to form a unity government. This was then followed up with a fast agreement with the International Monetary Fund for a new reform program leading to a market rally. Elections in Russia, where the outcome was perhaps the most predicable among all elections taking place in 2024, were of little significance to markets, but highlight that not all elections will be conducted free and fair. Over the course of the second and third quarter, India, the world’s largest democracy and South Africa, where a comeback by the kleptocratic former president Jacob Zuma could swing the election towards a coalition government, are notable plebiscites in emerging markets. However, the race to become the 47th US president in November, the first re-run of a previously held contest in 70 years, will undoubtably cast its long shadow over markets over the course of the next quarters.


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Comparisons to a financial index are provided for illustrative purposes only. Comparisons to an index are subject to limitations because portfolio holdings, volatility and other portfolio characteristics may differ materially from the index. Unlike an index, individual portfolios are actively managed and may also include derivatives. There is no guarantee that any of the securities in an index are contained in any managed portfolio. The performance of an index may assume reinvestment of dividends and income, or follow other index-specific methodologies and criteria, but does not reflect the impact of fees, applicable taxes or trading costs which, unlike an index, may reduce the returns of a managed portfolio. Investors cannot invest in an index. Because of these differences, the performance of an index should not be relied upon as an accurate measure of comparison.


JPMORGAN CEMBI BROAD DIVERSIFIED HIGH YIELD INDEX – JPMorgan CEMBI Broad Diversified High Yield is a sub components of the JPMorgan CEMBI Div Broad Composite Blended Yield Index, which cover the sub investment grade part of this composite index.

JPMORGAN EMBI GLOBAL DIVERSIFIED INDEX ─ JPMorgan EMBI Global Diversified Index is an unmanaged, market-capitalization weighted, total-return index tracking the traded market for US-dollar-denominated Brady bonds, Eurobonds, traded loans, and local market debt instruments issued by sovereign and quasi-sovereign entities.

JPMORGAN GOVERNMENT BOND–EMERGING MARKET INDEX – JPMorgan GBI-EM Global Diversified (GBI-EM) series, launched in June 2005, is the first comprehensive global emerging markets index of EM local government bond debt. There are three root versions of the GBI-EM with a Diversified overlay for each version; GBI-EM Broad / GBI-EM Broad Diversified, the GBI-EM Global / GBI-EM Global and the GBI-EM / GBI-EM Diversified.


Issuer names used herein are provided as examples for educational and illustrative purposes only and are not intended, nor should they be construed as, recommendations to buy or sell any individual security.

Information included herein should not be considered predicative of future transactions or commitments made by MacKay Shields LLC nor as an indication of current or future profitability. There is no assurance investment objectives will be met.  Past performance is not indicative of future results.



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