TY - JOUR T1 - Sovereign Spreads and Emerging Market Equity Returns JF - The Journal of Portfolio Management SP - 104 LP - 114 DO - 10.3905/jpm.2003.319924 VL - 30 IS - 1 AU - Brian C Gendreau AU - Leila Heckman Y1 - 2003/10/31 UR - https://pm-research.com/content/30/1/104.abstract N2 - There is evidence that the information incorporated in sovereign spreads can be used to improve country allocation strategies in emerging equity markets. Historically, sovereign spreads have been a value-oriented indicator of future equity performance across countries. Wide spreads have tended to signal rising future equity returns, and vice versa. In the backtests reported, sovereign spreads are found to be useful in forecasting equity returns even taking into account measures of equity valuations, real interest rates, and country credit ratings. Divergence of spreads from recent trends also appears to convey information about future equity returns. Countries where spreads have been falling tend to outperform. This effect, however, is not as strong as the tendency of countries with wide spreads to perform well in the future. ER -