e Emerging market bonds Preference: neutral EMBI Global/CEMBI spread (24 Oct): 281bps / 334bps (last month: 292bps /363bps) Recommendations UBS View EMBI Global/CEMBI spread target (6-month): 275bps/290bps Tactical (6 months) ¢ Current spread levels of EM sovereign bonds are roughly in line with fundamentals. We think valuations e EM corporate bonds are particularly of EM corporate bonds are more attractive than valuations of EM sovereign bonds. Additionally, the attractive due to their favorable gradual recovery in EM we expect over coming quarters should support the performance of EM corporate valuations, solid fundamentals, and bonds relative to EM sovereign bonds. Corporate bonds tend to outperform sovereign bonds during relatively short duration. We advise periods of accelerating growth. clients to focus on investment grade ¢ However, absolute returns of EM bonds will be lower than in the past, we think, as the room for spreads bonds in the current environment. We to tighten ee has become more limited. We expect total returns of less than 2% for EM sovereigns recommend taking profit on selected EM and close to 4% for EM corporate bonds over the next six months. sovereign bonds. Please refer to our EM ¢ Negative headlines from the Eurozone or global growth fears might put renewed short-term pressure on . . ” . . : 2 . : bond list for issuer- and bond-specific EM bond prices. We think that periods of price weakness offer attractive entry points. guidance A Positive scenario EMBI Global/CEMBI spread target (6-month): 235bps/230bps Strategic (1 to 2 years) ¢ Yield stability in Europe's core markets and higher-than-expected growth in the US would provide a ¢ EM bonds are attractive for longer-term favorable backdrop for EM fixed-income spreads. In such an environment, issuers of lower credit quality investors looking for higher yields. would likely fare better. Average spreads could tighten to below 240bps in such an environment. * Local markets in Asia offer intere