The surprise U.S. presidential election result turned sentiment sharply negative towards emerging market assets over the quarter ended December 31, 2016. The headline rhetoric was negative for trade, negative for the outlook on U.S. interest rates and negative for the foreign policy relations between the United States and a number of emerging market countries. This together with higher yields on U.S. Treasury securities led to heightened volatility for emerging markets over the quarter.
The most widely followed emerging market local currency benchmark, the JP Morgan GBI-EM Global Diversified index returned -6.09% for the 4th quarter but ended the full year 2016 with a respectable return of 9.94%. Notably U.S. treasury yield rose substantially over the quarter; the yield on 5-yr maturity U.S. Treasury bonds rose 78 basis points (bps) to 1.93%. Yields for the JP Morgan GBI-EM Global Diversified Index rose 61 bps to 6.79% over the same period.
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