德银-新兴市场-主权债务-新兴市场债务：技术监测，2018展望-20171207-19页_1mb

Summary of EM Debt: Technicals Monitor Outlook for 2018

Core Content

This document provides an outlook for Emerging Market (EM) credit markets in 2018, focusing on technical conditions, net supply, inflows, and regional distribution of sovereign debt.

Main Points

Net Supply and Issuance Pattern

• Net supply for EM sovereign debt in 2018 is expected to decrease to USD58bn, down from USD97bn in 2017.
• Gross issuance in 2018 is forecasted at USD145bn, with USD87bn in repayments.
• Issuances are anticipated to be front-loaded, with a concentration in January to April due to the expected rise in US interest rates.
• Historically, ~45% of sovereign issuances occur in the first quarter, followed by ~20% in the second and ~35% in the third quarter.

Inflows and Investor Behavior

• Inflows into EM hard currency funds were USD39bn in 2017 (23% of AUM), compared to USD16bn for local currency funds (15% of AUM) and USD8bn for blended currency funds (16% of AUM).
• Inflows have moderated towards the end of 2017, with USD1.5bn (0.8% of AUM) in November.
• The "hunt for yield" is expected to continue in 2018, but at a slower pace than in 2017.

Mutual Fund Performance

• The mutual fund beta has moved closer to 1, indicating a more market-aligned performance.
• In November, only 40% of the top 20 funds outperformed their benchmarks, compared to 65% in the third quarter of 2017 and 55% year-to-date.

Investor Positioning

• As of the end of October, EMBI-G and EMBI div investors were most overweight in Argentina, Brazil, Ukraine, and Peru.
• They were underweight in Philippines, Poland, Hungary, Colombia, and South Africa, among others.
• The data has a one-month lag, so it should be interpreted with caution.

Regional Distribution

• EMEA (Europe, Middle East, and Africa) has been the largest issuer of sovereign debt in 2017, with USD118bn (66% of total).
• Latin America (LatAm) accounted for USD41bn (23%), and Asia for USD21bn (12%).
• The regional mix is expected to remain similar in 2018.

Gulf Countries

• Gulf Cooperation Council (GCC) countries have seen a sudden surge in sovereign debt issuance since 2016.
• Their share of total EM sovereign debt issuance is expected to remain ~28% in 2018.

Country Flows

• A heat map of country flows shows positive and negative flows in terms of AUM.
• Argentina, Croatia, Nigeria, and Pakistan issued about USD12bn of external debt in November.
• Indonesia issued USD4bn in the first week of December.
• Country flows are ordered by the rank of last month's flow in % AUM.

Sovereign Debt Maturity and Repayment

• The distribution of EM sovereign external debt (interest + principal) over the next 10 years is detailed in a table.
• The debt maturity is spread across various years, with some countries like Turkey and Russia showing significant amounts of debt maturing in the next few years.
• EM sovereign external debt is categorized as Investment Grade (IG) or High Yield (HY).

Key Information

• EM sovereign debt issuance is expected to decrease in 2018.
• Front-loaded issuance is likely due to the US rate scenarios.
• Inflows will continue, but at a reduced pace.
• Investor positioning has moved closer to the benchmark.
• Regional distribution remains dominated by EMEA, followed by LatAm and Asia.
• GCC countries have seen a notable increase in issuance.
• Country flows show a mix of positive and negative movements, with some countries experiencing significant inflows or outflows.
• Debt maturity is spread over the next 10 years, with some countries showing higher amounts due to past issuance.

Conclusion

The outlook for EM credit markets in 2018 is positive, with supportive technical conditions expected due to reduced net supply and continued inflows, albeit at a slower pace. The front-loaded issuance pattern and market alignment of funds are favorable for the start of the year. The regional distribution and investor positioning are expected to remain consistent with 2017 trends.