Guy Stear, Research Analyst at Societe Generale, suggests that the EM high yield has been one of the best performing credit markets again this year but they think there is more pain to come in the EM high yield corporate sector. Key Quotes “This week has been calmer, but global financial markets have so far had a dreadful 2016. For credit investors this feels like a continuation of the widening which started in early September 2016, partially reversed in October and November, but then came back with a vengeance. Yet throughout this period, the relative resilience of EM corporate bond spreads has been a surprise. EM looks relatively resilient even if we look at absolute moves, rather than percentage moves. Why have EM high yield markets outperformed? There are two reasons that are often put forward. Reason 1: Better liquidity Reason 2: EM corporate have more sovereign support than DM corporates Still a mystery – and one we would fade: If there is no real liquidity advantage in EM high yield corporates, and they are not being held in by the strong performance of sovereigns, then the rationale for the EM high yield outperformance is still something of a mystery. In our view, this is still a sector to avoid – and one in which more bad news is potentially around the corner.” For more information, read our latest forex news.