Emerging Markets In a ‘Goldilocks’ Environment

Are investors becoming too ebullient on emerging markets once more? The warm welcome recently extended by the bond market to Ecuador — a serial defaulter — seems a good example of the triumph of hope over experience. The Latin American country has defaulted on its debt with such regularity that it repaid a bond fully and on time for the first time in its history only in 2015, the Financial Times reported. Yet even as Ecuador inched towards another International Monetary Fund bailout in late January, investors were willing to lend the government $1bn for the next 10 years, albeit at a juicy interest rate of more than 10 per cent. Ecuador’s return to the bond market is emblematic of a roaring rally in emerging markets this year. Emerging-market bonds are on track for their best quarter of returns in three years, pushing average yields down to a six-year low of 5.7 per cent, and equities are up 7.6 per cent. China’s stock market, battered in 2018, is up nearly 24 per cent. Read more