Emerging Market Distress
Political and economic uncertainty in emerging markets (EM) has become a significant risk for today’s investors. World equity markets have waned over the past few days, 10-year Treasury yields are down approximately 13 basis points, and the S&P 500 Index is down 3% since January 20. EM equities are also down roughly 5% as investors worry about the longer-term outlook for the asset class. Although the EM trade has come under selling pressure in the last couple of days, it’s important to note that the issues facing EM are not new, and represent a continuation of last year’s weakness. EM equities are 16% lower than they were at the start of 2013 and EM credit spreads have stretched roughly 100 basis points since the start of last year. However, this month we have witnessed several key catalysts that have exacerbated the trend.