Fixed income investors ignore exchange rates at their peril. They have the power to either erode or enhance the returns on an overseas bond portfolio. Which is why, in our emerging market debt strategies, we embrace them as separate sources of both risk and return.
Each currency, of course, has its unique drivers and the foreign exchange market overall is known for bouts for volatility. However, taking a medium-term view, we see the potential for broad-based appreciation of EM currencies versus the US dollar, providing a lift to total returns from local currency debt.
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