In assessing how attractive local currency emerging market sovereign debt is currently, we look at four criteria: changes in commodity prices, leeway on monetary and fiscal policy, valuations and external debt vulnerability. Asian countries appear the least sensitive to falling commodity prices. With the exception of India, Asia has the most leeway on fiscal policy. In terms of monetary policy Emerging Europe has the biggest margin of manoeuvre.
- Valuations are most attractive in Brazil, but real rates are positive in almost all emerging market debt markets
- The countries least vulnerable in terms of external sovereign debt issuance are in Asia, Russia and Brazil. All of which being well cushioned by large reserves of international currencies
- In conclusion we find that sovereign emerging debt is arguably an attractive investment alternative. Amongst emerging market debt markets we favour India most, followed by China and Poland
