The emerging markets are showing improvements in many respects. For example, they are currently showing more robust economic growth momentum. We are also observing an accelerated disinflation trend. This has developed better in the emerging markets than in the USA or the EU. One of the reasons for this is that the fiscal and monetary stimuli - particularly during the coronavirus pandemic - were much more moderate in the emerging markets than in the US or the EU. In addition, the central banks in the emerging markets began their cycle of interest rate hikes much earlier.
Well-paid risk
We expect local bonds in some of our favourite countries, such as Brazil and Mexico, to continue to perform well. In addition, valuations in various segments of the emerging markets are more compelling than in the developed economies. Spreads are attractive and real interest rates in the emerging markets are at their highest level in decades, both in absolute and relative terms.
Let's take our "favourite countries" Brazil and Mexico, the largest economies in South and Central America: an interest rate of around eleven percent is offset by inflation of 4.5 percent. This results in a real yield of just over six per cent.