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CONTRIBUTORS

Nicholas Hardingham, CFA

Portfolio Manager, Franklin Templeton Fixed Income

Stephanie Ouwendijk, CFA

Portfolio Manager, Research Analyst, Franklin Templeton Fixed Income

Robert Nelson, CFA

Portfolio Manager, Research Analyst, Franklin Templeton Fixed Income

Joanna Woods, CFA

Portfolio Manager, Research Analyst, Franklin Templeton Fixed Income

Sterling Horne, Ph.D

Research Analyst, 
Franklin Templeton Fixed Income

Carlos Ortiz

Research Analyst, Franklin Templeton Fixed Income

Jamie Altmann

Research Analyst, Franklin Templeton Fixed Income

Samantha Higgins

Analyst,
Franklin Templeton Fixed Income

Preview

In our last quarter’s update (Navigating uncertainty: The impact of the 2024 US elections on emerging markets), we shared our views on the 2024 US election and its potential impacts on emerging market debt (EMD) under the possible outcomes.

In this quarter’s update, we’re revisiting the same topic, now with the result in hand, both to review the accuracy of our predictions and reassess the outlook for EMD in light of recent cabinet nominations and policy statements. We also provide a brief overview of our initial expectations under a Red Sweep,1 and we’ll then review market reactions to the result and provide an updated assessment of the asset class, relative valuations and opportunities within EMD.

  1. Review of the pre-election outlook.
  2. How did markets respond?
  3. Updates to the policy outlook, and
  4. How does one best position for this within emerging markets?

Endnote

  1. A Red Sweep scenario is where Republicans control both the White House and both chambers of Congress.

 

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls.

International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically.

The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries.

The allocation of assets among different strategies, asset classes and investments may not prove beneficial or produce the desired results.

Sovereign debt securities are subject to various risks in addition to those relating to debt securities and foreign securities generally, including, but not limited to, the risk that a governmental entity may be unwilling or unable to pay interest and repay principal on its sovereign debt.

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