Emerging market (EM) bonds are increasingly becoming a strategic holding for many investors but a key consideration in this is the different attributes of hard- and local currency-denominated bonds — the two broad sets of investments available in the asset class — and understanding the benefits each can bring to a portfolio.
March 13, 2024
Geographic representation across local and dollar sovereign bonds
Data as at 29 February 2024. Local bonds refers to the JPMorgan GBI-EM Global Diversified Total Return index. Dollar bonds refers to the JPMorgan EMBI Global Diversified index. Source: JPMorgan
Hard currency bonds are a credit asset where risk-adjusted returns compare favourably with both high-yield and developed market investment-grade debt. Local currency bonds, on the other hand, can be an attractive investment for investors seeking to diversify their currency exposure and willing to accept the investment risks associated with monetary and fiscal policymaking in the developing world. Local bond investments provide access to an increasingly diverse set of countries whose interest rate cycles are largely uncorrelated and whose markets are supported by a growing local institutional investor base.
Overall, a research-based approach can help find value within both hard and local currency debt, particularly during volatile markets.
Jeremy J.W. Cunningham is an investment director at Capital Group. He has 37 years of industry experience and has been with Capital Group for eight years. Prior to joining Capital, Jeremy worked as head of EMEA fixed income business development at Alliance Bernstein. Before that he was head of product management at Schroders. Earlier in his career he was a fixed income portfolio manager at INVESCO, J.P. Morgan Fleming and Merrill Lynch. He holds the Chartered Financial Analyst® designation. Jeremy is based in London.
