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Market Tensions in EM

November 22, 2022

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While China was the biggest detractor in October, we believe our decision to retain our country holdings will prove prescient as China begins reopening.

We currently see three key market tensions (as opposed to directions): 1) China reopening vs. the “divorce”; 2) U.S. Federal Reserve’s (Fed’s) anti-inflation focus vs. the limpness of higher rates in addressing food and energy prices; and 3) the potential for some near-term thawing in geopolitical tension vs. the fact of the West’s loss of Eurasia. We believe these tensions will remain an issue for some time.

While the Emerging Markets Bond Fund (the “Fund”) was down as compared to its benchmark in October, YTD outperformance is still at 291bps. Our underperformance in October was due primarily to China, but the Fund held on to its China property names (as much as possible, given risk-management constraints), making China’s reopening and policy support for the sector a big winner for our view. For detailed Fund performance and EM debt outlook, download the commentary.

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