EMB - EMB: Countries Not That Exposed To Dangers Of US Stagflation
2024-06-10 11:54:43 ET
Summary
- The EMB has a lot of dollar-pegged exposures, so FX risks and carry trade pressures are avoided to a degree.
- Other countries benefit from implicit dollarisation, or are dollar-long economies, which limits FX risks on the debts.
- Even with countries that are reducing rates and are less dollarised, debt levels are relatively low, and country-level commodity exposures are solid. So no broad credit risks.
- EMB doesn't really feature the typical reflexive issues of emerging market debt wherein FX weakness begets public finance weaknesses.
- Still, the FX risks on total return remain, and with the conviction of a higher for longer environment, it is better to avoid EMB even though it could be a duration play on EM rate cutting.