Emerging markets represent a huge opportunity, but it is important to know how to play it right to get the best results. Our how-to guide shows how to make the most of the emerging market debt story.
1. Consider taking a thematic approach to emerging market debt. Macroeconomic factors make a big difference in this area, and drive changes in asset prices. Keep an eye on fundamentals and regulation.
2. Where possible, keep track of which emerging market countries are more likely to tighten monetary policy. If a country is expected to increase interest rates, buy their currency, and sell currencies of countries with low rates or which are expected to decrease rates.
3. Master risk management. One of the key factors of investing in emerging market debt is knowing when is the right time to scale out.
4. Understand what you’re signing up for. The emerging market class is itself divided into subgroups, and it is important to know the different characteristics of sovereign debt and corporate debt, including the differences in denomination.
5. Take denomination into account. Local currencies add diversity, but also bring in a new form of risk. It is important to understand changes in exchange rate between two countries affects the value of investments denominated in other currencies.
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