e Emerging market bonds Preference: overweight EMBI Global / CEMBI spread (27 June): 388bps / 430bps (last month: 410bps /440bps) Recommendations UBS View EMBI Global / CEMBI spread target (6-month): 340bps / 350bps Tactical (6 months) ¢ Emerging market (EM) bond spreads are currently higher than implied by fundamentals, and we think e EM corporate bonds are particularly they offer attractive returns even against a more challenging global backdrop. attractive due to favorable valuation, ¢ The probability remains significant, though, that negative headlines out of the Eurozone or a weakening solid fundamentals, and their relatively global growth outlook will put short-term pressure on EM bond prices. However, given EM sovereigns’ short duration. We advise clients to focus better average fundamentals, and EM corporates' solid profit growth outlook and low leverage ratios, we on investment grade bonds in the current think that periods of price weakness should offer attractive entry points. environment. We continue to like e Although we revised our spread targets (to 340bps from 300bps for sovereigns, and to 350bps from selected sovereign bonds. 310bps for corporates), we continue to expect spreads to trend gradually lower over the next six months, e Please refer to our EM bond list for more than offsetting the moderate rise in US Treasury yields we expect in the quarters ahead. specific guidance. A Positive scenario EMBI Global / CEMBI spread target (6-month): 290bps / 290bps Strategic (1 to 2 years) ; a, j } ; e EM bonds are attractive for longer-term ¢ Yield stability in Europe's core markets and higher-than-expected growth in the US would provide a investors looking for higher yields. favorable backdrop for EM fixed income spreads. In such an environment, issuers of lower credit quality ° Local markets in Asia offer interesting would likely fare better. Average spreads could tighten to below 300bps in such an environment. opportunities for longer-term investors & Ne