EM reaches critical juncture
* Confluence of risks shakes confidence
* Commodity exporters most vulnerable to shocks
* Analysts caution against excessive pessimism
By Sudip Roy
LONDON, Oct 3 (IFR) - Investors are increasingly fretting about the outlook for emerging markets as a combination of market and political risks threatens to derail a successful year for the asset class.
While the total return on JP Morgan's EMBI Global, which tracks the performance of hard currency-denominated debt, is 7.3% for the year up to September 30, in the two months since August 1 it is -1.2%.
In spread terms, the index is at its widest level since March when the Russia-Ukraine conflict began, having blown out 50bp over the third quarter.
Many recent new issues have struggled to perform in the secondary market with even a recent five-year bond from Abu Dhabi Commercial Bank, which is majority state-owned, down nearly one point.
Analysts say a confluence of risks have left emerging markets at their most parlous state since the so-called taper tantrum of last year. Those risks include the prospect of tighter US monetary policy, a strong US dollar, slower growth, especially in China, geopolitical concerns in Ukraine and the Middle East, protests in Hong Kong, the upcoming presidential election in Brazil and the departure of Bill Gross from Pimco. Continuación...