Business Maverick: Fed’s big rate hike unearths bounty in pockets of emerging world

Losses in developing markets have so far been smaller than in the US during a wide-reaching rout that saw the worst Treasuries collapse in at least. Corporate bonds from emerging nations are proving to be more resilient than US high-yield debt and stocks are up to a three-month high relative to their counterparts in the S&P 500 Index.

“The negative market view toward emerging markets will be relatively short-lived,” said Lewis Jones, emerging-market debt portfolio manager at William Blair Investment Management LLC in New York. “We expect the emerging market-developed market growth differential to widen as the US slips closer to recession.”

As a selloff in US high-yield corporate bonds deepens, more than doubling the average yield in the past year, emerging-market corporate debt is witnessing smaller losses. Their relative resilience has taken the spread between emerging markets and US high yield from a premium to a discount this year. Now developing-nation bonds are offering the least yield since November 2020, in relative terms.

For Nordea Investment, there’s also opportunity hiding in emerging markets if fears of a US recession align with cooling inflation and the Fed starts easing off its hawkish path.

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