April 2021 / VIDEO
The Resilience of EM Corporate Debt
The upside of EM debt is relatively well understood, through the history of strong returns. I'd like to focus more on the downside, or client concerns about this category being too risky.
What you can see on this chart is periods of drawdown, or negative return, highlighted in grey. It also then shows you the relative performance of different risky asset classes. The green line - emerging corporate debt - shows a moderate drawdown profile during these bear markets. It very consistently has outperformed emerging sovereign debt, emerging local debt and emerging equity during those periods of negative return. We think this is likely to continue because emerging corporate debt is an average investment grade asset class, with a moderate duration profile.
Now let’s take a longer look at the volatility of emerging market returns.
This chart shows the rolling one-year return on the emerging sovereign market in dark blue and the emerging corporate market in light blue. The periods of selloff, highlighted in light blue, have gotten more shallow over time, and this has to do with the rising average credit quality of EM debt. Back in the 1990s, this was primarily a high yield asset class, dominated by countries like Argentina, Turkey, Brazil, Russia. Since then, the asset class has transformed. Asia credit has gone from 5% of the market to over 50% of the market.
This has deflated the historic volatility of returns, as evidenced in the most recent period of selloff.
This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.
Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.
The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.
It is not intended for distribution to retail investors in any jurisdiction.