Is the tide shifting for emerging market debt? Typically, when investors lose confidence in the markets, emerging markets are among the first to suffer. But the debt of emerging economies has held up amid the recent volatility. While the S&P 500 has declined for the past three consecutive weeks, emerging markets have bucked the trend, with the J.P. Morgan Emerging Market Index Global up 1.2% for the month as of last week.
Last week investor bullish sentiment declined to 26.89%, according to the American Association of Individual Investors (the first time positive sentiment has fallen below 30% since last August when the Fed announced a second round of stimulus). And new capital inflows into emerging market bonds amounted to $898 million in the week ended May 11th (according to bond fund tracker EPFP).
Putting that aside, emerging market bonds recently signaled a buy (after trend lines signaled a sell in March). And based on relative strength within a diversified bond portfolio, emerging market debt (both dollar and local currency denominated) has performed very well.
Looking at a proxy for emerging market debt - iShares JPMorgan USD Emerging Markets Bond Fund (EMB) - while we saw a recent buy signal, the fund has become a little hot lately. A correction is possible, though shares would hit a support level around $106.50. If that level is broken, another support would be found at $105.80.
The bottom line: This fund is in a positive, long-term uptrend, and offers broad exposure to emerging market debt (with top holdings in Russia, Brazil, Mexico, the Philippines and Turkey).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.