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bEmerging marketonds are becoming more resilient to global economic shocks, less dependent on the US dollar and potentially more attractive to investors, as per a report by Goldman Sachs (GS).
The report highlighted that emerging market debt demonstrated greater stability despite the surge in oil prices triggered by the Iran war earlier this year, defying expectations of a widespread selloff in developing economies. "...emerging market sovereign and corporate bonds weathered the shock with a newfound stability and solid performance for investors," it said. According to Goldman Sachs, the development reflects the growing maturity of emerging market credit as an asset class, with investors increasingly reassessing opportunities across government and corporate debt markets. Anupam Damani, co-head and senior portfolio manager of emerging market debt at Goldman Sachs Asset Management, highlighted the structural transformation of these markets over the past decade. Emerging market credit is now unrecognizable, and I mean that in a good way, Damani said, adding, These bonds used to come with a crisis label, but this market is no longer monolithic. In my view, it has become a more diverse and resilient asset class, though risks remain. The report noted that emerging market debt was traditionally viewed as a risk-sensitive investment category, where global uncertainty often triggered broad-based selling. However, stronger foreign exchange reserves, deeper domestic capital markets and more credible inflation-management frameworks have helped improve resilience across several developing economies. Goldman Sachs noted that more than 80 emerging market countries now offer sovereign debt opportunities, providing investors with greater diversification. Nevertheless, Damani cautioned that economic and institutional improvements remain uneven across countries, making careful investment selection essential. "EM credit used to be largely a sovereign-only market. Today, we have a rapidly evolving market for corporates," Damani said. "In fixed income, we believe emerging market corporates have historically offered attractive Sharpe ratios, or risk-adjusted performance, relative to many other sectors," she added. Goldman Sachs further noted that the growing use of local-currency borrowing and alternative currencies is potentially strengthening their ability to withstand future financial disruptions. "The US dollar constraint is less binding than it used to be in previous cycles," it said, noting, "Emerging market countries are also issuing more debt in euros and renminbi." (ANI)
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