According to National Bank of Canada analyst, Krishen Rangasamy, rising corporate spreads suggests stress is building up in emerging markets, hurting equity markets as a result.
Key Quotes:
“Down more than 10% so far this year, the MSCI emerging markets index is on track for its worst year since 2015. Is this a buying opportunity, or should investors wait a bit longer for the dust to settle? That depends on whether or not you believe financial market stress will diminish over the coming weeks.”
“Stress continues to build up in emerging markets. Corporate bond yields are climbing in response to enhanced risks posed by mounting trade protectionism (which casts doubts about growth prospects) and the appreciating U.S. dollar (which makes USDdenominated debt harder to service) (...) Emerging market corporate spreads with U.S. Treasuries are now as wide as 300 basis points, the highest since 2016.”
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