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29 | 2023 Investment Outlook | December 12, 2022 EMERGING MARKETS DEBT Signals Indicate an Enticing Entry Point for EM Debt KEY POINTS Along with the improving macro, fundamental and technical picture, compelling 1 valuations point to a market reset for EM debt. Marshall Stocker, Ph.D., CFA We see a number of attractive opportunities across the universe, particularly in Co-Head of Emerging local interest rates and also in corporate spreads. Markets Debt, 2 Portfolio Manager Sentiment swings may affect EM assets in 2023, although market pessimism 3 appears to have peaked. What We Are Seeing ƒ Several signs indicate that emerging markets (EM) debt is poised for a turnaround in 2023. To Bradford Godfrey, start, valuations appear compelling on a historical basis and relative to other asset classes. In CFA our view, market pricing in EM debt for macro uncertainty was aggressive through most of the Institutional Portfolio past year—perhaps more than for any other asset class. Manager, Emerging Markets Debt ƒ However, macro uncertainty is now beginning to recede in two key ways: First, the U.S. Federal Reserve’s hawkish policy stance appears to have topped out, as inflationary headwinds look to be gradually dissipating. Second, while the future of China’s COVID policy is not clear, it appears that authorities are starting to relax restrictions amid growth concerns and increasing social pressures. ƒ Many EM economies are revising growth forecasts upward in line with stronger fundamentals. Monetary discipline should pay off for those countries that took early and decisive action on raising interest rates, as they will enjoy greater flexibility in managing central bank policy to stimulate growth ahead. ƒ The technical picture is also showing nascent signs of recovery. EM debt recently saw net inflows return after record outflows of $87 billion from the asset class over the first 10 1 months of 2022. ƒ We believe that outflows have likely bottomed out and anticipate stronger net flows in 2023. In particular, we expect multi-sector managers, who drastically cut exposure to EM bonds in 2022, to continue increasing allocations as the outlook improves. What We Are Doing ƒ Based on our bullish views, we have been adding select opportunities across our EM debt portfolios. We remain particularly optimistic about EM local interest rates, as real yield differentials between emerging and developed markets appear very attractive. While slightly off their peak, those differentials remain among the highest levels seen since the global financial crisis.

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