Emerging Markets: The Biggest, Fastest Growing, and Arguably Least Understood Pool of Credit in the World

PIMCO

Research

11 Pages

Pimco published an overview of emerging market debt, which has surpassed U.S. corporate debt to become the world’s largest credit pool. 

Key Takeaways

Diversification Over Yield: EM debt's return distribution now resembles that of U.S. corporate debt, making it more suitable for diversification than for chasing high yields. The EM debt market has grown significantly, with a diverse range of instruments and issuers, necessitating more nuanced investment strategies.
Shift in Macro Risks: The primary risks in EM have transitioned from economic complexities to political uncertainties, rendering macro-driven alpha strategies less effective.
Bottom-Up Approach: Investors are encouraged to focus on bottom-up, relative-value strategies that are less correlated with systemic macro events, enhancing resilience in volatile markets. Active management in EM debt has consistently outperformed passive strategies, highlighting the value of skilled portfolio construction in this asset class.
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