Since the Brexit referendum last June, economic fundamentals have defied expectations of a sharp slowdown. Despite considerable policy uncertainty, consumer spending remained buoyant, industrial activity and business investment held up well.

We have taken a positive view on Emerging Market debt for some time. Over the past few months, however, we tempered our enthusiasm as we balanced relatively attractive spreads against the implications of rising protectionism for trade-dependent economies. Market developments, however, are now leading us to change our view.  Valuations have become less attractive, even if our concerns regarding the macroeconomic backdrop for many markets have subsided.

Just over a year ago, global markets were unsettled by concerns over China’s decelerating growth. Investors focussed on the mounting leverage in the economy. Commodity prices plummeted. Relatively minor (albeit abrupt) changes to the currency basket were viewed as precursors to a devaluation. Many fretted over the declining foreign exchange reserves, and believed that a “hard landing” of the economy was inevitable.