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What is EMD?

What is EMD?

Emerging markets countries, also called developing economies, currently represent nearly 60% of global GDP, according to the International Monetary Fund. Once called “third-world countries,” emerging markets are striving to transition from lower-income status toward modern, industrial economies and higher standards of living for their growing middle classes. Emerging markets debt (EMD) includes debt issued by governments, government-sponsored enterprises and corporate issuers in these developing countries. The market includes sovereign bonds denominated in US dollars, sovereign bonds denominated in local currencies and bonds issued by corporations domiciled in emerging markets. Due to its attractive characteristics, EMD is becoming a strategic asset class for many institutional investors around the globe.

Fast Facts:

  • The first EMD index was launched in 19901
  • The EMD investable universe represents over $3 trillion, more than the US high yield bond and developed markets high yield universes2
  • The universe includes 70+ countries, more than half of which have investment grade ratings3
  • Over the past 10 years, EMD volatility has been significantly lower than EM equity volatility and nearly equal to the volatility of US high yield bonds4

1 Source: J.P. Morgan
2 Source: J.P. Morgan. The total reflects assets represented by indices as of 4/30/2020.
3 Source: J.P. Morgan as of 4/30/2020.
4 Source: Bloomberg as of 4/30/2020.

Why Emerging Markets?

Emerging markets offer many attractive qualities, including:

  • Faster growth and often lower debt levels than their developed markets counterparts
  • Increasing populations and rising middle classes, leading to expanded opportunities over the next several decades
  • Relatively low inflation due to the adoption of sophisticated monetary and fiscal policies, including inflation targets set by independent central banks
  • Higher yields in most cases than developed markets, providing opportunity for higher income in a low-rate environment

EMD and Other Index Values, 2003 to 2019

as of

As of . Source: Stone Harbor Investment Parners LP, Bloomberg. Benchmarks: EMD Hard Currency: J.P. Morgan EMBI Global Diversified; EMD Local Currency: J.P. Morgan GBI EM Global Diversified. EMD Corporates: J.P. Morgan CEMBI Broad Diversified. Past performance is not a guarantee of future results. For illustrative purposes only.

The J.P. Morgan EMBI Global Diversified (EMBI Global Diversified) tracks total returns for U.S. dollar-denominated debt instruments issued by emerging markets sovereign and quasi-sovereign entities: Brady bonds, loans, and Eurobonds. The index limits the weights of those index countries with larger debt stocks by only including specified portions of these countries’ eligible current face amounts outstanding. The countries covered in the EMBI Global Diversified are identical to those covered by the EMBI Global.

The J.P. Morgan GBI-EM Global Diversified consists of regularly traded, liquid fixed-rate, domestic currency government bonds to which international investors can gain exposure. The weightings among the countries are more evenly distributed within this index.

The J.P. Morgan Corporate Emerging Markets Bond Index (CEMBI) tracks total returns of U.S. dollar-denominated debt instruments issued by corporate entities in Emerging Markets countries. Two variations are available: CEMBI Broad and CEMBI. The CEMBI Broad is the most comprehensive corporate benchmark followed by the CEMBI, which consists of an investable universe of corporate bonds. Both indices are also available in Diversified version.

The Bloomberg Barclays U.S. Aggregate Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and assetbacked securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis.

The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.

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