emerging markets debt monitor
TRANSCRIPT
Emerging Markets
Debt Monitor
Q3 2021
EMERGING MARKETS TEAM
Emerging Markets Debt Monitor | Q3 2021
Important information and disclosure
2
The views expressed in this update are those of the Eaton Vance Emerging Markets team and are current only through the date stated. These
views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such
views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors,
may not be relied upon as an indication of trading intent on behalf of any Eaton Vance strategy. Eaton Vance does not provide legal or tax advice.
The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or
completeness. Individuals should consult their own legal and tax counsel as to matters discussed.
Emerging Markets Debt Monitor | Q3 2021
Table of contents
Q3 Recap 4
Q4 2021 Outlook 13
EM FX 16
EM Interest Rates 20
EM Sovereign Credit 24
EM Corporate Credit 29
White Paper/Blog Summary 32
3
Q3 2021 Recap
Emerging Markets Debt Monitor | Q3 2021
Q3 2021 recap
5
Emerging markets debt generally sold off during the third quarter, albeit with differentiation across segments. Concerns about the Delta variant
of Covid-19, regulatory crackdowns in China, and a more-hawkish Fed than anticipated all contributed to weigh on investor sentiment. The
commodity complex was mixed with energy prices increasing notably largely on a combination of supply-chain disruptions and weather effects in
both Europe and China while much of the metals complex was weaker with concerns over the property sector in China. Fundamentals do appear
to remain on solid footing in broad terms with continued economic expansion globally, higher commodity prices, a robust new-issue market,
multilateral institutional support (e.g. the IMF), and a relatively supportive macro backdrop with loose fiscal and monetary policy throughout much
of the developed world.
As it was around much of the world, inflationary pressures remain elevated in most EM countries. Perhaps different than most DM central banks,
many EM central banks have been reacting with more orthodox monetary policy. This combination has led to relatively steep yield curves in
many countries and also provided additional support to currencies.
EM corporates were the best performing segment of the market producing a positive total return. The average spread tightened further during
the quarter within the corporate segment despite notable widening in China. EM sovereign spreads widened during the quarter amidst negative
sentiment, but remain not far off long-term averages. The rise in U.S. Treasury yields late in the quarter weighted on both of the hard-currency
indices. In the local segment, both currencies and local rates continued their sell-offs that started late in the second quarter and caused the local
segment to be the worst-performing.
Inflows into EMD continued with approximately $3.6 billion net in during the quarter, but slowing notably from the pace of the first half of the year
where we saw more than $50 billion net in.
The new issuance market remained wide open, maintaining broad market access for countries across the credit quality spectrum and
representing an important supportive factor for the asset class.
Emerging Markets Debt Monitor | Q3 2021
Q3 2021 recap - continued
6
Asia
COVID-19, perhaps, had the most notable impact on the region as additional waves of the virus rolled across it amidst low vaccination rates and
were met with strict lockdown measures in many situations. This likely represented a hit to growth during the quarter for the region as a whole,
but may also set it up for a stronger rebound going forward.
Evergrande was the lead story in markets to end the quarter, but is perhaps a reminder that the political calendar is very important in China with
the 20th Party Congress scheduled for October 2022 and regulatory measures historically seeming to concentrate about a year in advance.
Some of the frontier countries in the region face notable challenges with Sri Lanka likely to have to restructure debt, Vietnam implementing
lockdowns and disrupting global supply chains, and Pakistan dealing with the fallout of the U.S. withdrawal from Afghanistan.
CEEMEA
Inflationary pressures remained particularly high across the region, but continued to be met by refreshingly orthodox monetary policy – notably in
Russia and Hungary. Turkey is perhaps the notable exception with a surprise cut in September despite YoY inflation nearing 20%.
A surprise election outcome in Zambia has investors optimistic for a potential turnaround with a new, market-friendly president in place.
South African assets have continued to perform relatively well on the back of base effects from higher metal prices even as fundamentals
continue to appear to deteriorate.
LATAM
Growth across the region continues to struggle and appears to be slowing further as fiscal stimulus fades and central bank rate hikes pick up.
Many countries appear to face their own, idiosyncratic challenges: politics in Peru and Chile, fiscal concerns in Brazil and Colombia, debt
restructuring in Argentina, and uncertainty on the regulatory front in Mexico.
Ecuador’s new president is pushing for meaningful reform and bears watching – increasing foreign investment could be particularly meaningful.
Emerging Markets Debt Monitor | Q3 2021
Source: J.P. Morgan, Eaton Vance calculations. Corporate Credit Spread and Sovereign Credit Spread return attributions are modeled by decomposing the overall spread return to its two components: the sovereign spread and
the corporate spread over the sovereign. It is not possible to invest directly in an index. Data provided is for informational use only. Past performance is no guarantee of future results. See end of report for important additional
information.
Index performance recap
7
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
J.P. Morgan GBI-EMGlobal Diversified
J.P. Morgan EMBIGlobal Diversified
J.P. Morgan CEMBIBroad Diversified
FX
EURUSD
Rates
Carry
Sovereign Credit Spread
Corporate Credit Spread
U.S. Treasury
Q3 2021
Index FX
EURUSD
Exchange
Rate
Move
Rates Carry
Sovereign
Credit
Spread
Corporate
Credit
Spread
U.S.
Treasury
Total
Return
J.P. Morgan GBI-EM Global Diversified -2.39% -0.47% -1.54% 1.30% - - - -3.10%
J.P. Morgan EMBI Global Diversified - - - - -0.54% -0.02% -0.15% -0.70%
J.P. Morgan CEMBI Broad Diversified - - - - 0.07% 0.22% -0.04% 0.25%
Emerging Markets Debt Monitor | Q3 2021
Index FX
EURUSD
Exchange
Rate
Move
Rates Carry
Sovereign
Credit
Spread
Corporate
Credit
Spread
U.S.
Treasury
Total
Return
J.P. Morgan GBI-EM Global
Diversified-7.35% 1.77% 2.83% 5.45% - - - 2.69%
J.P. Morgan EMBI Global
Diversified- - - - -2.84% -0.35% 8.44% 5.26%
J.P. Morgan CEMBI Broad
Diversified- - - - 1.89% -0.78% 6.03% 7.13%
Source: J.P. Morgan, Eaton Vance calculations. Corporate Credit Spread and Sovereign Credit Spread return attributions are modeled by decomposing the overall spread return to its two components: the sovereign spread and
the corporate spread over the sovereign. It is not possible to invest directly in an index. Data provided is for informational use only. Past performance is no guarantee of future results. See end of report for important additional
information.
Index performance recap
8
YTD
Index FX
EURUSD
Exchange
Rate
Move
Rates Carry
Sovereign
Credit
Spread
Corporate
Credit
Spread
U.S.
Treasury
Total
Return
J.P. Morgan GBI-EM Global
Diversified-3.42% -1.03% -5.75% 3.82% - - - -6.38%
J.P. Morgan EMBI Global
Diversified- - - - 1.80% 0.11% -3.27% -1.36%
J.P. Morgan CEMBI Broad
Diversified- - - - 2.82% 0.37% -1.66% 1.53%
2020
Emerging Markets Debt Monitor | Q3 2021
0
20
40
60
80
100
Issuance by Region(U.S. $ Billions)
Asia CEEMEA Latam
0
20
40
60
80
100
Issuance by Type(U.S. $ Billions)
Agency Corporate Sovereign
Primary market
9
Source: Bloomberg. Data provided is for informational use only. See end of report for important additional information.
• Emerging Market Eurobond Issuance for Q3: Total issuance of $146bn.
• EM issuance continued to be strong for most of the quarter, but activity slowed down following the news of
Evergrande’s financial troubles.
Emerging Markets Debt Monitor | Q3 2021 10
Sources: Bloomberg, The Central Bank of Uzbekistan, World Bank. DB = World Bank Doing Business Report
Before 2016, Uzbekistan was un-investable Closed economy
Centrally planned for 25 years
Hostile towards foreign investments
No functioning capital markets
Regime shift in 2016: a refreshing reform story emerged New reform-minded president elected
Re-opening of the economy:
Removal of most tariff and non-tariff barriers to cross-border flows of people and goods Unification of exchange rates Lifting of price controls Privatization of state owned enterprises (SOEs)
166156
146
103
82
87
74
76
69
0
20
40
60
80
100
120
140
160
180
0
500
1000
1500
2000
2500
2012 2013 2014 2015 2016 2017 2018 2019 2020
Ra
nkin
g #
US
D M
illio
ns
Foreign Direct Investment has increased along with an improving business environment
FDI World Bank DB Rank
0
2000
4000
6000
8000
10000
12000
US
D/U
ZS
USD vs. UZS: floating the exchange rate in 2017 ended decades of severe misallocation of capital
Uzbekistan: Country Focus
Emerging Markets Debt Monitor | Q3 2021 11
Sources: Central Bank of Uzbekistan, State Committee of the Republic of Uzbekistan on Statistics.
But, initially reforms were half-baked: Capital account relaxed some but not all stringent controls
Access to foreign currency locally remained constrained
Interest rates too low to contain inflation
SOEs had preferential treatment on cheap financing and access to foreign currency
By early 2020, half steps became full steps: Wholesale liberalization of foreign exchange market
Hiked rates, transmission mechanism effective
Inflation targeting regime
Radical tax reform
0
5
10
15
20
25
%
Sound Monetary Policy allowed the Central Bank of Uzbekistan to bring down inflation
CPI YoY Uzbekistan Key Policy Rate
10
13
16
19
22
25
2/1/2015 2/1/2016 2/1/2017 2/1/2018 2/1/2019 2/1/2020 2/1/2021
%
An improving transmission mechanism increases attractiveness of local currency
Weighted avg. interest rate on commerical bank deposits
Uzbekistan: Country Focus
Emerging Markets Debt Monitor | Q3 2021 12
13.8 13.7 12.1 12.5 14.3 13.5
12.3 14.014.6
16.3
20.2 20.2
0
5
10
15
20
25
30
35
40
2016 2017 2018 2019 2020 1H 2021
US
D B
illio
ns
Sizable foreign exchange reserves
Foreign Currency Reserves Monetary Gold
Sound fiscal and monetary policy continue to lower Uzbekistan’s cost of borrowing while building up external buffers.
Uzbekistan’s reform agenda is underway and promising. The country’s
policymakers still have a long road ahead of them.
Sources: Bloomberg. Central Bank of Uzbekistan
12
12.4
12.8
13.2
13.6
14
14.4
Yie
ld %
Uzbekistan UZS-denominated Eurobond: Yields have declined since issuance
26.127.7 26.7 28.8
34.5 33.7
Uzbekistan: Country Focus
Q4 2021 Outlook
Emerging Markets Debt Monitor | Q3 2021
Q4 2021 Outlook
Macro Drivers
As we head towards the end of the year, we are cautiously optimistic
on the asset class given that the balance of fundamentals and
valuations appears reasonable.
Fundamentals are broadly solid as the global economy continues to
expand albeit at a slower rate of growth than earlier in the year.
Primary risks stem from COVID-19, Evergrande/China, and the Fed.
Fiscal balances are also a concern in many spots. However, markets
broadly appear to be pricing these risks appropriately and valuations
appear fair overall.
Inflationary pressures remain and many EM central banks have
responded with orthodox monetary policy. This is in contrast to most
DM central banks which have the benefit of implicit institutional
credibility. This dynamic remains critical and one we continue to
watch closely.
COVID-19 still remains a dominant macro factor for markets and
individuals – and it varies by region and country as to both the impact
and corresponding policies.
Country Drivers
While COVID-19 generally remains the largest factor at the individual
country level and continues to wreak havoc on lives and livelihoods,
many countries have learned to live with the virus. We continue to see
more well-run countries with a plan navigate its challenges best.
Inflationary pressures continue to be interpreted differently across
countries, although most EM central banks are viewing as more than
transitory and many have reacted by hiking rates. As previously noted,
Turkey is a notable exception. Currency markets will react to these
policies going forward while already steep yield curves appear
attractive in many spots.
The commodity complex has continued its rally – albeit more nuanced
during Q3 than earlier in the year. This has further improved the
economic dynamics in many countries – particularly energy exporters.
We expect markets to continue to differentiate amongst countries and
credits. While fundamentals are broadly on solid footing, market
concerns remain with El Salvador, The Bahamas, and Sri Lanka most
notable.
14
The views expressed are those of the Strategy’s investment team and are current only through the date stated on the cover of this presentation. These views are subject to change at any time without notice based upon
market or other conditions, and Eaton Vance disclaims any responsibility to update such views. Different views and opinions may be expressed by others. These views may not be relied upon as investment advice and,
because investment decisions are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance strategy. Please see additional important information and disclosure
contained in the Appendix.
Emerging Markets Debt Monitor | Q3 2021
EMD Risk Factor Dashboard
15
Data provided is for informational use only and should not be considered investment advice.
Outlook and summary
UnderweightModerate
UnderweightNeutral
Moderate
OverweightOverweight Summary
Currency We downgrade FX to neutral as
reasonable fundamentals and valuations
are balanced versus risks from the Fed,
Covid, and China.
Local Interest
Rates
We maintain local interest rates at
moderate overweight. Real interest rate
differentials with G3 remain wide and
curves are steep with increasing
inflationary pressures and central bank
hikes being priced in aggressively in
spots.
Sovereign Credit Maintain at neutral. The combination of
solid fundamentals and valuations near
long-term averages appear fair.
Corporate Credit Downgrading to moderate underweight
in aggregate. Spreads outside of Asia
high yield are tight. However,
idiosyncratic opportunities remain for
those able to dig deep.
EM FX
Emerging Markets Debt Monitor | Q3 2021
60.0
70.0
80.0
90.0
100.0
110.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Nominal FX Index Weight
REER Index Weight
REER Broad
EM FX
17
1. Nominal FX (in GBI-EM
Index) has weakened
significantly since 2018.
2. But looking at real effective
exchange rate (REER) is a
better way to get a sense of
value. This shows less of a
decline but still highlights
recent volatility and current
value.
3. If you broaden the universe
beyond the GBI-EM
benchmark it shows that FX
is not as cheap by this
measure but value remains.
Source: J.P. Morgan, Barclays. Nominal FX Index Weight is the J.P. Morgan GBI-EM Global Diversified index currencies and weights. REER Index Weight is the Barclays real effective exchange rate data of the currencies in
the J.P. Morgan GBI-EM GD. REER Broad uses Barclays real effective exchange rate data for the following countries equal weighted: Brazil, Chile, Colombia, Hungary, Indonesia, Malaysia, Mexico, Peru, Philippines,
Poland, Romania, South Africa, Thailand, Turkey, China, India, Uruguay, Vietnam, Nigeria, Egypt. Data provided is for informational use only. Past performance is no guarantee of future results. See end of report for
important additional information.
EM FX broadly weakened for most of the quarter. The spread of the Delta variant of COVID-19, a more hawkish U.S. Fed,
and Evergrande’s challenges all put a damper on the segment.
1
2
3
Emerging Markets Debt Monitor | Q3 2021
Source: Bloomberg, Eaton Vance. *Versus euro. Data provided is for informational use only. Past performance is no guarantee of future results. See end of report for important additional information.
EM FX
18
The majority of EM currencies weakened during the quarter though, as typical, notable exceptions existed.
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
CL
P
BR
L
PK
R
PE
N
ZA
R
ET
B
TH
B
PH
P
BW
P
MX
N
AR
S
GH
S
KE
S
PY
G
HU
F*
TR
Y
PL
N*
CO
P
MA
D
CR
C
MY
R
BD
T
NG
N
RO
N*
LK
R
MU
R
EG
P
KW
D
RS
D*
XO
F*
JO
D
INR
AZ
N
UG
X
GT
Q
KZ
T
CN
Y
CN
H
RU
B
LB
P
CZ
K*
QA
R
VN
D
DO
P
GE
L
UY
U
IDR
AM
D
UA
H
FX QoQ Change vs USD
Emerging Markets Debt Monitor | Q3 2021
EM FX
Growth forecast are
mixed as countries are
rebounding from COVID
at different rates.
Current account
adjustments have been
mixed since the taper
tantrum of 2013.
19
Source: IMF World Economic Outlook (WEO). Data provided is for informational use only. See end of report for important additional information.
EM FX likes good growth and strong external balances.
-10
-5
0
5
10
% Change in IMF Growth Forecasts (From Oct 2020 WEO to April 2021 WEO)
-40-30-20-10
0102030
Current Account % Change as % of GDP (2013 to 2021E)
EM Interest Rates
Emerging Markets Debt Monitor | Q3 2021
2.75
3.00
3.25
3.50
3.75
4.00
4.25
4.50
4.75
EM Consensus CPI Expectations*(% Change YOY)
Source: Bloomberg, Eaton Vance. *Data is the equal weighted average of headline inflation expected in 18-30 months by economists surveyed by Bloomberg, which includes all countries in the J.P. Morgan Government Bond
Index-Emerging Markets (GBI-EM) Global Diversified, except Argentina. Data provided is for informational use only. Past performance is no guarantee of future results. See end of report for important additional information.
EM rates
21
Many EM central banks continued to act and hike rates in order to combat inflation. After cooling early in the period,
inflation expectations resumed their move higher from late July on.
Emerging Markets Debt Monitor | Q3 2021
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
7.50
8.00
EM Consensus Policy Rate Expectations*
Source: Bloomberg, Eaton Vance. *Data is the equal weighted average of expected policy rates in 12 months by economists surveyed by Bloomberg, which includes all countries in the J.P. Morgan Government Bond Index-
Emerging Markets (GBI-EM) Global Diversified, except Argentina. Data provided is for informational use only. Past performance is no guarantee of future results. See end of report for important additional information.
EM rates
22
Amidst increasing inflation pressures, many EM central banks have hiked rates, are talking about hiking, or have hikes
being priced into local yield curves. In some spots, forward-looking pricing of hikes into yield curves seems aggressive.
Emerging Markets Debt Monitor | Q3 2021
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
202
0
202
1
EM Real Yields(Using Inflation Forecasts)
EM DM
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
202
0
202
1
EM-DM Real Yield Differential(Using Inflation Forecasts)
EM rates
23
Source: Bloomberg, J.P. Morgan, Eaton Vance. Real yields are calculated as nominal yield minus headline inflation expected in 18-30 months by economists surveyed by Bloomberg. Excludes Argentina, Turkey, and
Romania. Data provided is for informational use only. Past performance is no guarantee of future results. See end of report for important additional information.
EM and DM real yields using inflation expectations. EM-DM real yield differentials moved even wider during the period,
back towards their widest levels of the past decade and which we view as possessing attractive value.
EM Sovereign Credit
Emerging Markets Debt Monitor | Q3 2021
0
200
400
600
800
1000
1200
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
bp
s
5yr Equal Weight Sovereign Spread
EM sovereign credit
25
Sovereign spreads widened a
bit during the quarter, but
ended the period still near long-
term averages.
The combination of solid
fundamentals and broader risks
appear to justify these levels.
Additionally, the new issuance
calendar remained open across
the quality spectrum.
The still low yields throughout
developed markets should
continue to provide support for
the space, but…
That said, broader risks and
idiosyncratic troubled spots
remain. As always, specific
circumstances need to be
analyzed country-by-country.
Source: Eaton Vance proprietary data and calculations. Excludes Argentina. Underlying individual country spreads are capped at 3,000 bps. All spreads are modeled five year par equivalent spreads allowing for like
comparisons across countries and time. This differs from EMBI data which is comprised of discount and premium bonds with different maturities. Data provided is for informational use only. Past performance is no guarantee
of future results. See end of report for important additional information.
Emerging Markets Debt Monitor | Q3 2021
0
100
200
300
400
500
600
700
800
900
bp
s
5yr Equal Weight Sovereign Spread
0
200
400
600
800
1000
1200
1400
1600
bp
s
5yr Equal Weight Sovereign Spread by Region
Sub-Saharan Africa Asia
Eastern Europe Latin America
MENA
EM sovereign credit
26
Source: Eaton Vance proprietary data and calculations. Excludes Argentina. Underlying individual country spreads are capped at 3,000 bps. All spreads are modeled five year par equivalent spreads allowing for like
comparisons across countries and time. This differs from EMBI data which is comprised of discount and premium bonds with different maturities. Data provided is for informational use only. Past performance is no guarantee
of future results. See end of report for important additional information.
At the regional level, spreads moved in different directions with
Asia, Latin America and Eastern Europe wider while Sub-Saharan
Africa and MENA were tighter.
Spreads tightened for most of the quarter but gradually
widened in September.
Emerging Markets Debt Monitor | Q3 2021
Underlying individual country spreads are capped at 3,000 bps. Zambia change in spread is -883
Source: Eaton Vance proprietary data and calculations. Data provided is for informational use only. Past performance is no guarantee of future results. See end of report for important additional information.
EM sovereign credit
27
Credit spreads widened in more spots than narrowed during the quarter with some extremes on either end.
(600)
(500)
(400)
(300)
(200)
(100)
-
100
200
300
400
500
600
El S
alv
ado
r
Bah
am
as
Sri L
an
ka
Gha
na
Egyp
t
Pakis
tan
Tu
rkey
Gua
tem
ala
Nig
eria
Colo
mb
ia
Uru
gua
y
Costa
Ric
a
Boliv
ia
Sen
eg
al
Uzbekis
tan
Ecua
do
r
Phili
ppin
es
Para
gua
y
Sou
th A
fric
a
Mo
ngo
lia
Azerb
aija
n
Ang
ola
Ma
laysia
Sha
rja
h
Ukra
ine
Bah
rain
Chile
Ken
ya
Bra
zil
Rom
ania
Gab
on
Peru
Om
an
Pan
am
a
Qata
r
Ja
ma
ica
Abu
Dha
bi
Hond
ura
s
Ind
ia
Hong
Ko
ng
Sou
th K
ore
a
Ivory
Coa
st
Sau
di A
rab
ia
Chin
a
Mo
rocco
Isra
el
Ind
one
sia
Pola
nd
Dom
inic
an R
ep
ub
lic
Tri
nid
ad A
nd
Tob
ag
o
Jo
rdan
Russia
Me
xic
o
Berm
uda
Kaza
khsta
n
Ira
q
Arm
en
ia
Bela
rus
Za
mb
ia
bp
s
Q3 2021 Change in 5yr Spread
Emerging Markets Debt Monitor | Q3 2021
Underlying individual country spreads are capped at 3,000 bps. Source: Eaton Vance proprietary data and calculations. Data provided is for informational use only. Past performance is no guarantee of future results. See end of
report for important additional information.
EM sovereign credit
28
The number of distressed sovereign credits remains similar. Opportunity remains in spots while further risk exists in
others; country selection remains critical.
0
500
1000
1500
2000
2500
Sri L
an
ka
Za
mb
ia
El S
alv
ado
r
Bah
am
as
Ecua
do
r
Gha
na
Bela
rus
Ang
ola
Ira
q
Pakis
tan
Boliv
ia
Tu
rkey
Ukra
ine
Egyp
t
Gab
on
Nig
eria
Ken
ya
Costa
Ric
a
Hond
ura
s
Om
an
Jo
rdan
Sen
eg
al
Bah
rain
Mo
ngo
lia
Ivory
Coa
st
Uzbekis
tan
Arm
en
ia
Tri
nid
ad A
nd
Tob
ag
o
Sou
th A
fric
a
Dom
inic
an R
ep
ub
lic
Ja
ma
ica
Gua
tem
ala
Colo
mb
ia
Azerb
aija
n
Bra
zil
Sha
rja
h
Para
gua
y
Mo
rocco
Uru
gua
y
Ind
ia
Peru
Pan
am
a
Russia
Rom
ania
Berm
uda
Chile
Ind
one
sia
Me
xic
o
Sau
di A
rab
ia
Ma
laysia
Phili
ppin
es
Qata
r
Isra
el
Kaza
khsta
n
Abu
Dha
bi
Sou
th K
ore
a
Hong
Ko
ng
Pola
nd
Chin
a
bp
s
5yr Spreads
EM Corporate Credit
Emerging Markets Debt Monitor | Q3 2021
0 bps
100 bps
200 bps
300 bps
400 bps
500 bps
600 bps
Example of EM Corporate Bond (South American chemicals company 2028s)
US Rates SICR Corp SoS
How we evaluate EM corporate debt:
Decompose the yield into its three components: UST yield, sovereign-induced corporate credit
spread (SICR) and corporate credit spread over the sovereign spread.
EM corporate credit – The basics
30
EM corporate debt market is unique.
The market is an intersection of EM
sovereign debt managers, U.S. corporate
debt managers and global high yield
managers.
While asset managers are actively growing
their pure-play EM corporate debt
strategies, this group remains a smaller
subset of the buyer universe and
inefficiencies are prevalent.
EM sovereign debt managers look primarily
at spread-over-sovereign while corporate
credit teams analyze spreads across
companies within an industry subsector. We
think it is important to incorporate both into
the analysis.
Source: Eaton Vance proprietary data and calculations. Data provided is for informational use only. Past performance is no guarantee of future results. See end of report for important additional information.
Corp Spread
over Sovereign
Spread
Sovereign-
Induced
Corporate Credit
Spread
UST Yield
Emerging Markets Debt Monitor | Q3 2021
EM corporate credit – Valuations
31
Source: Eaton Vance proprietary data and calculations. CEMBI bonds used in calculation. Data provided is for informational use only. Past performance is no guarantee of future results. See end of report for important
additional information.
Q3 was a strong quarter for EM corporates while other areas of the EMD universe experienced negative returns. Evergrande, a
Chinese property developer, made headlines in September with the increasing likelihood that the company could declare bankruptcy
and default on debt. However, outside of the Asian high-yield market, investors appeared to believe the odds of further contagion
across the space are quite low as Latin American and Central and Eastern Europe, Middle East and Africa (CEEMEA) credits
generally performed well during the quarter. Pemex, one of the largest issues in the universe, notably continued to gain support from
the Mexican government. While Covid-19 has disrupted supply chains, commodity producers have been able to capitalize on large
margins which has helped the companies to de-lever.
0
100
200
300
400
500
600
700
800
2016 2017 2018 2019 2020 2021
bp
s
Spread Over Sovereign (CEMBI)5 Yr Period
Sovereign Spread Simple Corporate Spread over Sovereign
0
100
200
300
400
500
600
700
800
900
1000
bp
s
Spread Over Sovereign (EV Universe)1 Yr Period
Sovereign Spread Simple Corporate Spread over Sovereign
White Paper and Blog
Post Summary
Emerging Markets Debt Monitor | Q3 2021
White Paper Summary – 2021
33
Date Headline Summary
8/06/2021
Economic policy’s critical role for
shaping ESG outcomes in emerging
markets
While the foundational factors behind improvements in environmental, social and governance (ESG) considerations are seldom
investigated at the country level, the evidence demonstrates a clear relationship between the orientation of economic policy and
ESG outcomes.
6/01/2021Falling volatility supports bullish
outlook for emerging markets
After facing headwinds stemming from the sell-off in U.S. Treasurys over recent months, the outlook appears bright for
emerging markets debt (EMD) thanks to a supportive macro environment, improving fundamentals and the attractive valuations
available to investors.
5/14/2021Economic Transparency means a
credit worthy sovereign
Eaton Vance Management explores the relationship between Economic Transparency and Yield Spreads, Credit Ratings, Stock
Price Volatility and Trust in Government across 130 countries. Sovereign Economic Transparency is the extent to which
authorities provide timely, reliable and accessible information relating to fiscal and monetary policies and the general economy.
3/04/2021Going beyond "active vs. passive" in
EM debt
Eaton Vance offers proactive management that seeks to fully capitalize on the broadest possible EM opportunity set. Our
proprietary investment capabilities have been developed over three decades for exploiting idiosyncrasies of the EM debt sector
and generating alpha for clients.
2/09/2021Five reasons to be bullish on local-
currency emerging-market debt
EM economic growth is leading the global economic recovery, yet EM returns in 2020 lagged the asset gains in developed
markets. EM economies did not shut down to the same degree as developed economies in 2020, nor are they shutting down as
aggressively now
Emerging Markets Debt Monitor | Q3 2021
Blog post summary – 2021
34
Date Headline Summary
9/22/2021Evergrande’s Troubles Predate
China’s Crackdown on Capitalism
We have followed developments related to Chinese property developer Evergrande since fall 2020, even more closely since
April. With the further deterioration in prices for Evergrande's outstanding securities and the increasing likelihood that the
company could declare bankruptcy and default on debt soon, here's an update on what we think.
8/25/2021
IMF gives developing countries a
substantial boost amid delta variant
crises
The International Monetary Fund (IMF) made the largest allocation of Special Drawing Rights (SDRs) in its history — $650
billion. The inflow of funds should more than double some of these countries' international reserves. This record allocation by
the IMF should help build confidence and foster resilience and stability in the global economy at a time when the delta variant
threatens the world's recovery.
8/09/2021South Africa's woes predate - and
likely will long outlast - July's riots
Long before Zuma's arrest, South Africa has struggled with growing fiscal deficits, rising government debt, crumbling
infrastructure and disappointing growth, all of which were exacerbated by the COVID-19 pandemic. The former president still
has a loyal group of followers, and the Ramaphosa government has blamed loyalists for the riots and uproar.
7/13/2021
EM debt at midyear: Looking forward
from the second quarter's strong
comeback
The inflation threat has spurred some EM central banks to hike rates, with markets continuing to price in more such moves — in
some cases, aggressively. This combination has led to relatively steep yield curves in many countries and also provided
additional support to currencies, which had been the strongest factor for EM for most of the period.
7/2/2021
Serbia's new inclusion in Index
highlights potential benefits of
investing outside indexes
Serbia serves as an example of the importance of policy and the idea that economies can reform with time and consistent effort.
Just as importantly, the country illustrates the potential for alpha in the EM debt sector for those willing to invest the time and
effort to go beyond the narrow confines of common indexes.
Emerging Markets Debt Monitor | Q3 2021
Blog post summary – 2021
35
Date Headline Summary
6/16/2021Real interest rates suggest value in
EM debt
In our view, the key to capitalizing on EM debt opportunities in this environment will rely heavily on understanding the economic
trends within each country and the forces driving real interest-rate differentials. Many EM countries have had more recent
experience with elevated inflation levels. That contrasts with developed markets, where inflation is being driven — at least
initially — by postpandemic issues, like supply chain constraints and large price jumps compared with year-ago levels.
5/24/2021
How insights into economic
transparency can generate alpha for
clients
New research from the Eaton Vance emerging markets team introduces a proprietary Economic Transparency Index, which
shows that the market rewards more transparent countries with tighter sovereign spreads and higher credit quality ratings.
5/3/2021
Slower global recovery seen at IMF
meeting as well as an expanded
agenda
The IMF meeting's agenda revealed that social concerns such as climate change, vaccine distribution and an equitable
recovery are a higher priority than fiscal and monetary policy. It could be a source of concern if the shift were prolonged, as
monetary and fiscal issues could potentially be overlooked.
4/14/2021Macro factors remain strong for EM
debt after 1Q21 sell-off
We don't believe the absolute level of U.S. Treasury yields is problematic for EM debt. The biggest issue in the first quarter for
EM debt was the rapid, sharp increase in rates. Yields across developed markets remain low and, combined with ballooning
deficits in the U.S., the U.S dollar is likely to resume weakening.
3/16/2021
Emerging markets debt – ESG
engagement through an expert
approach
The team intends to improve the value of clients' investments and deliver positive externalities in the form of ESG gains via its
engagement initiatives. To this end, we have developed a structured, two-pronged approach to engagement that utilizes both
systematic and opportunistic channels to identify and undertake engagement opportunities.
2/22/2021
Serbia’s new inclusion in Index
highlights benefits of investing
outside indexes
The EM debt team first invested in Serbian debt more than a decade ago, as a result of proprietary country-level
macroeconomic and political research. While this approach is time- and labor-intensive, we believe it is the best process for
identifying potential success stories.
2/2/2021EM local currencies poised to be
major driver in EM debt returns
Emerging markets debt - and specifically emerging markets currencies (EM FX) - stand as one of few attractively valued assets
in today's capital markets. But value opportunities also need catalysts for their potential to be realized, and the case for EM FX
has those as well, based on fundamentals, macro environment and technical support.
1/14/2021Macro forces align in broad tailwind
for EM debt
We entered the quarter neutral on the space, but the macro environment turned notably positive and we are now broadly quite
bullish. With proper due diligence and attention to country-specific risk, we believe EM debt deserves careful consideration from
investors.
Emerging Markets Debt Monitor | Q3 2021
Important information and disclosure
36
ABOUT ASSET CLASS COMPARISONS:
Elements of this report include comparisons of different asset classes, each of which has distinct risk and return characteristics. Every investment carries risk, and principal values
and performance will fluctuate with all asset classes shown, sometimes substantially. Asset classes shown are not insured by the FDIC and are not deposits or other obligations of, or
guaranteed by, any depository institution. All asset classes shown are subject to risks, including possible loss of principal invested.
The principal risks involved with investing in the asset classes shown are interest-rate risk, credit risk and liquidity risk, with each asset class shown offering a distinct combination of
these risks. Generally, considered along a spectrum of risks and return potential, U.S. Treasury securities (which are guaranteed as to the payment of principal and interest by the
U.S. government) offer lower credit risk, higher levels of liquidity, higher interest-rate risk and lower return potential, whereas asset classes such as high-yield corporate bonds and
emerging market bonds offer higher credit risk, lower levels of liquidity, lower interest-rate risk and higher return potential. Other asset classes shown carry different levels of each of
these risk and return characteristics, and as a result generally fall varying degrees along the risk/return spectrum.
Costs and expenses associated with investing in asset classes shown will vary, sometimes substantially, depending upon specific investment vehicles chosen. No investment in the
asset classes shown is insured or guaranteed, unless explicitly stated for a specific investment vehicle. Interest income earned on asset classes shown is subject to ordinary federal,
state and local income taxes, excepting U.S. Treasury securities (exempt from state and local income taxes) and municipal securities (exempt from federal income taxes, with certain
securities exempt from federal, state and local income taxes). In addition, federal and/or state capital gains taxes may apply to investments that are sold at a profit. Eaton Vance does
not provide tax or legal advice. Prospective investors should consult with a tax or legal advisor before making any investment decision.
Credit ratings that may be referenced are based on Moody's, S&P or Fitch, as applicable. Credit ratings are based largely on the rating agency's investment analysis at the time of
rating and the rating assigned to any particular security is not necessarily a reflection of the issuer's current financial condition. The rating assigned to a security by a rating agency
does not necessarily reflect its assessment of the volatility of a security's market value or of the liquidity of an investment in the security. Ratings of BBB or higher by Standard and
Poor's or Fitch (Baa or higher by Moody's) are considered to be investment grade quality.
INDEX DEFINITIONS:
J.P. Morgan Government Bond Index-Emerging Markets (GBI-EM) Global Diversified is an emerging market debt benchmark that tracks local currency bonds issued by
emerging market governments. J.P. Morgan Emerging Markets Bond Index (EMBI) Global Diversified is an unmanaged index of USD-denominated bonds with maturities of more
than one year issued by emerging markets governments. J.P. Morgan Corporate Emerging Market Bond Index (CEMBI) Broad Diversified is an unmanaged index of USD-
denominated emerging market corporate bonds. ICE BAML U.S. High Yield Index is an unmanaged index of below-investment grade U.S. corporate bonds. ICE BAML US
Corporate Index is an unmanaged index that measures the performance of investment-grade corporate securities.
Information has been obtained from sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. The Index is used with permission. The Index
may not be copied, used, or distributed without J.P. Morgan’s prior written approval. Copyright 2019, J.P. Morgan Chase & Co. All rights reserved.
ICE® BofAML® indices are not for redistribution or other uses; provided “as is”, without warranties, and with no liability. Eaton Vance has prepared this report and ICE Data Indices,
LLC does not endorse it, or guarantee, review, or endorse Eaton Vance’s products. BofAML® is a licensed registered trademark of Bank of America Corporation in the United States
and other countries.
Emerging Markets Debt Monitor | Q3 2021
Important information and disclosure
37
Source of all data: Eaton Vance, as at 9/30/2021, unless otherwise specified.
This material is presented for informational and illustrative purposes only. This material should
not be construed as investment advice, a recommendation to purchase or sell specific
securities, or to adopt any particular investment strategy; it has been prepared on the basis of
publicly available information, internally developed data and other third-party sources believed
to be reliable. However, no assurances are provided regarding the reliability of such information
and Eaton Vance has not sought to independently verify information taken from public and
third-party sources. Investment views, opinions, and/or analysis expressed constitute
judgments as of the date of this material and are subject to change at any time without notice.
Different views may be expressed based on different investment styles, objectives, opinions or
philosophies. This material may contain statements that are not historical facts, referred to as
forward-looking statements. Future results may differ significantly from those stated in forward-
looking statements, depending on factors such as changes in securities or financial markets or
general economic conditions.
This material is for the benefit of persons whom Eaton Vance reasonably believes it is
permitted to communicate to and should not be forwarded to any other person without the
consent of Eaton Vance. It is not addressed to any other person and may not be used by them
for any purpose whatsoever. It expresses no views as to the suitability of the investments
described herein to the individual circumstances of any recipient or otherwise. It is the
responsibility of every person reading this document to satisfy himself as to the full observance
of the laws of any relevant country, including obtaining any governmental or other consent
which may be required or observing any other formality which needs to be observed in that
country. Unless otherwise stated, returns and market values contained herein are presented in
US Dollars.
In the EU this material is issued by MSIM Fund Management (Ireland) Limited (“MSIM FMIL”)
registered in the Republic of Ireland with Registered Office at 7-11 Sir John Rogerson's Quay,
Dublin 2, D02 VC42, Ireland. MSIM FMIL is regulated by the Central Bank of Ireland with
Company Number: 616661.
Outside of the US and EU, this material is issued by Eaton Vance Management (International)
Limited (“EVMI”) 125 Old Broad Street, London, EC2N 1AR, UK, and is which is authorised and
regulated in the United Kingdom by the Financial Conduct Authority.
This material is only intended for and will only be distributed to persons resident in jurisdictions
where such distribution or availability would not be contrary to local laws or regulations.
EVMI/MSIM FMIL markets the services of the following strategic affiliates: Eaton Vance
Management ("EVM"), Eaton Vance Advisers International Ltd (“EVAIL”), Parametric Portfolio
Associates® LLC ("PPA"), Calvert Research and Management (“CRM”), and Atlanta Capital
Management Company LLC ("Atlanta "). EVM, EVAIL, PPA, CRM and Atlanta are SEC
registered investment advisor and are part of Morgan Stanley Investment Management, the
asset management division of Morgan Stanley.
This material is for Professional Clients/Accredited Investors only.
This material does not constitute an offer to sell or the solicitation of an offer to buy any
services referred to expressly or impliedly in the material in the People's Republic of China
(excluding Hong Kong, Macau and Taiwan, the "PRC") to any person to whom it is unlawful to
make the offer or solicitation in the PRC.
The material may not be provided, sold, distributed or delivered, or provided or sold or
distributed or delivered to any person for forwarding or resale or redelivery, in any such case
directly or indirectly, in the People's Republic of China (the PRC, excluding Hong Kong, Macau
and Taiwan) in contravention of any applicable laws.
In Singapore, Eaton Vance Management International (Asia) Pte. Ltd. (“EVMIA”) holds a
Capital Markets Licence under the Securities and Futures Act of Singapore (“SFA”) to conduct,
among others, fund management, is an exempt Financial Adviser pursuant to the Financial
Adviser Act Section 23(1)(d) and is regulated by the Monetary Authority of Singapore (“MAS”).
Eaton Vance Management, Eaton Vance Management (International) Limited and Parametric
Portfolio Associates® LLC holds an exemption under Paragraph 9, 3rd Schedule to the SFA in
Singapore to conduct fund management activities under an arrangement with EVMIA and
subject to certain conditions.
In Australia, EVMI is exempt from the requirement to hold an Australian financial services
license under the Corporations Act in respect of the provision of financial services to wholesale
clients as defined in the Corporations Act 2001 (Cth) and as per the ASIC Corporations (Repeal
and Transitional) Instrument 2016/396.
EVMI is registered as a Discretionary Investment Manager in South Korea pursuant to Article
18 of Financial Investment Services and Capital Markets Act of South Korea.
Morgan Stanley Investment Management (“MSIM”) (the asset management division of Morgan
Stanley (NYSE: MS)) and its affiliates have arrangements in place to market each other’s
products and services. Each MSIM affiliate is regulated as appropriate in the jurisdiction it
operates. Please refer to the MSIM ADVs for details of affiliates.
In the United States:
Eaton Vance Management is an SEC –registered investment advisor and part of Morgan
Stanley Investment Management, the asset management division of Morgan Stanley.
Eaton Vance Distributors, Inc. (“EVD”), Two International Place, Boston, MA 02110, (800) 225-
6265. Member of FINRA/ SIPC.
Eaton Vance WaterOak Advisors. Two International Place, Boston, MA 02110. Eaton Vance
WaterOak is an SEC-registered investment advisor and part of Morgan Stanley Investment
Management, the asset management division of Morgan Stanley.
Investing entails risks and there can be no assurance that Eaton Vance will achieve
profits or avoid incurring losses. It is not possible to invest directly in an index. Past
performance is not a reliable indicator of future results.
21651 10.5.21
About Eaton Vance
Eaton Vance is part of Morgan Stanley Investment Management, the asset management division of Morgan Stanley. It provides advanced investment strategies and wealth management solutions to
forward-thinking investors around the world. Through its distinct investment brands Eaton Vance Management, Parametric, Atlanta Capital and Calvert, the Company offers a diversity of investment
approaches, encompassing bottom-up fundamental active management, responsible investing, systematic investing and customized implementation of client-specified portfolio exposures. Exemplary
service, timely innovation and attractive returns across market cycles have been hallmarks of Eaton Vance since 1924.
For more information or to subscribe
for updates visit
eatonvance.com
Eaton VanceTwo International PlaceBoston, MA 02110800 225 6265617 482 8260eatonvance.com
@2021 Eaton Vance Management
For more information, please contact:
:
Eaton Vance Management
(International) Limited
125 Old Broad Street, London,
EC2N 1AR, United Kingdom
+44 (0)203 207 1900
eatonvance.co.uk
Eaton Vance Management
International (Asia) Pte. Ltd.
8 Marina View, 13–01 Asia Square Tower
1, Singapore 018960
+65 6713 9241
eatonvance.sg
Eaton Vance Management
(International) Limited
Suite 05, Level 25, 259 George Street
Sydney NSW 2000 Australia
+61 2 8229 0200
eatonvance.com.au
NOT FDIC INSURED | OFFER NO BANK GUARANTEE | MAY LOSE VALUE | NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY | NOT A DEPOSIT
MSIM Fund Management (Ireland) Limited7-11 Sir John Rogerson's Quay
Dublin 2, D02 VC42, Ireland
+353 1 799 8700