EMERGING

MARKETS DEBT Samy Muaddi, CFA

Portfolio Manager

November 17, 2016

2017 Global Market Outlook Press Briefing

2

Emerging Market Vulnerabilities Have

Structurally Declined

Developed Countries

Mainstream Emerging

Countries and Second-

Tier Countries

Frontier Emerging

Countries

3

Where Are We in the Cycle?

FOUR FACTORS TO CONSIDER

1 Fiscal

2 External

3 Social and Political

4 Private Sector

4

Sources: T. Rowe Price and International Monetary Fund.

1. Fiscal Vulnerabilities Are Less Evident

Across Emerging Markets (EM)

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

1990 1995 2000 2005 2010 2015

Mil

lio

ns—

US

D

HISTORICAL AMOUNT OF IMF

ASSISTANCE OUTSTANDING

Total IMF Loans Oustanding

Total Less Greece/Portugal/Ireland

20

30

40

50

60

70

80

90

100

110

120

130

2001 2003 2005 2007 2009 2011 2013 2015 2017(F)

2019(F)

% o

f G

DP

EM VS. G7 PUBLIC DEBT

2016–2019 forecast

Major Advanced Economies (G7)

Emerging Markets

5

Sources: T. Rowe Price and Haver Analytics.

Current account balance chart is based on countries as follows: Mexico, Indonesia, Russia, China, Turkey, Brazil, Venezuela, Colombia, Chile, Hungary, South

Africa, Kazakhstan, Lebanon, Peru, Poland, Ukraine, Panama, Malaysia, Bolivia, Costa Rica, Ecuador, Guatemala, Paraguay, Uruguay, Jordan, Oman, Egypt, India,

Pakistan, Vietnam, Ghana, Ivory Coast, Kenya, Morocco, Nigeria, Tunisia, Azerbaijan, Belarus, Georgia, Slovakia, Latvia, Serbia, Lithuania, Croatia, Romania,

Dominican Republic, Bahrain, Iran, Israel, Qatar, Saudi Arabia, United Arab Emirates, Palestinian Territories, Bangladesh, Korea, Macau, Thailand, Algeria,

Botswana, Mauritius, Uganda, Albania, Kyrgyz Republic, Bulgaria, Czech Republic, Estonia, Slovenia, Macedonia, Bosnia and Herzegovina, and Kosovo.

2. External Vulnerabilities Have

Cyclically and Structurally Adjusted

-3.5%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1995 1998 2001 2004 2007 2010 2013 2016

CA

as

a P

erc

en

t o

f G

DP

(S

A,

%)

EM CURRENT ACCOUNT BALANCE—

FOUR-QUARTER ROLLING AVERAGE

0%

10%

20%

30%

40%

50%

60%

1995 1998 2001 2004 2007 2010 2013 2016

Ye

ar-

Ove

r-Y

ea

r C

ha

ng

e in

CP

I

EM INFLATION

6

As of September 30, 2016

Sources: T. Rowe Price and CRB Rates.

2. The Monetary Policy Response

Function Is Increasingly Unsynchronized

May 2005 – June 2006

Interest rates up

Interest rates down Interest rates up Interest rates stable

UK Eurozone

Russia

Australia

Canada

Philippines

South Korea

India

Indonesia

Mexico

U.S.

South Africa

2015

Brazil

77

cuts 66

hikes

Colombia

2016 YTD

58

cuts 31

hikes

ILLUSTRATIVE INTEREST RATE CYCLE

7

Source: Peterson Institute, January 2016.

3. Global Trends in Wealth Accumulation

Favor EM Consumption

0

10

20

30

40

50

60

70

80

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

Gro

wth

Ra

te i

n P

erc

en

tag

e

Percentiles of the Global Income Distribution

CUMULATIVE INCOME GROWTH RATE SINCE 1990s

POORER RICHER

8

Sources: Images 1‒4 are public domain; Image 5: Creative Commons, www.kremlin.ru; Image 6: Creative Commons, Licurgo Miranda.

3. Markets Often Follow the Leader

UPCOMING CATALYSTS

China 19th party congress

Brazil pension reform

Venezuela resolution

Russian sanctions

African National Congress

(ANC) elective conference

Turkey constitution

Argentina parliamentary election

Ecuador general elections

Nigeria local elections

4

5

1

3

2

6

9

Sources: T. Rowe Price, J.P. Morgan, Bank of America, Fitch Ratings, and Bank for International Settlements (BIS).

*For bond issuers.

4. Private Sector Contingent Liabilities

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2008 2009 2010 2011 2012 2013 2014 2015 LTM

Net

Le

ve

rag

e (

ex

Rea

l E

sta

te a

nd

Defa

ult

s)

GLOBAL EM CORPORATE

NET LEVERAGE TREND*

EM Corp. Global

Asia

EM Europe

Latin America

Middle East/Africa

73%

13%

10%

4%

DISTRIBUTION OF EM CORPORATE

LEVERAGE BY SOURCE

Local Banks

Local Currency Bonds

BIS Claims

USD Bonds

10

As of December 31, 2015

Sources: T. Rowe Price and Haver Analytics.

4. China’s USD $30 Trillion Dollar Problem

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

GLOBAL EM LONG-TERM HISTORY

OF CREDIT TO GDP (%)

All EM Mean

South America Mean

Central America Mean

CEE Average

Africa Mean ex SOAF

Mideast Mean

Asia Mean

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

GD

P G

row

th/N

on

fin

an

cia

l P

riva

te S

ec

tor

Cre

dit

Gro

wth

EFFECTIVENESS OF CHINA’S

CREDIT EXPANSION WEAKENING

11

Where Are We in the Cycle?

FOUR FACTORS TO CONSIDER

1 Fiscal

2 External

3 Social and Political

4 Private Sector

12

Emerging Markets Offer a Compelling

Yield and Duration Profile

As of September 30, 2016

Sources: T. Rowe Price, Bloomberg Barclays, J.P. Morgan, and MSCI.

Returns are in U.S. dollar terms. Benchmarks: J.P. Morgan EMBI Global, J.P. Morgan GBI – EM global diversified; J.P. Morgan CEMBI Broad Diversified, Bloomberg

Barclays European High Yield, Bloomberg Barclays, U.S. High Yield, Bloomberg Barclays U.S. Corporate Investment Grade, Bloomberg Barclays European

Corporate Investment Grade, Bloomberg Barclays U.S. Aggregate – U.S. Treasury; Bloomberg Barclays Global Aggregate ex U.S., Bloomberg Barclays Global

Aggregate – German bund; Bloomberg Barclays Global Aggregate – Japanese government bond.

U.S. Treasuries AAA

U.S. IG Corporates A-

U.S. High Yield B+

EM Sovereign Hard Currency

BB+ EM Corporate

BBB-

EM Sovereign Local Currency BBB+

International Bonds Euro IG Corporate

A-

Euro HY BB

JGB A+

Bunds AAA

-2

0

2

4

6

8

3 4 5 6 7 8 9 10 11

Yie

ld (

%)

Duration (Years)

With more than USD $10 trillion in developed market sovereign debt offering negative yields,

emerging markets provide an attractive yield and duration profile alongside a history of

compelling long-term risk-adjusted returns.

13

Emerging Markets Still Offer

Relative Value

As of October 31, 2016

Sources: T. Rowe Price and J.P. Morgan.

Major developed USD bond yields represented by the average of U.S., Germany, Japan, UK 5 and 10-year yields.

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Yie

ld D

iffere

ntia

l (%)

Yie

ld t

o M

atu

rity

(%

)

EM VS. DEVELOPED SOVEREIGN YIELD HISTORY

Differential (R)

EM Sovereign Bond Yields in USD

Average of Major DM Government Bond Yields

14

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