This week's developments have not provided much relief as the better-than-expected Chinese Q2 growth last week seems to have failed to lift sentiment, commodities have continued to fall and the USD has strengthened further against most EM currencies.



EM credit spreads, while c.20bp off their tights in early May, have remained relatively resilient and were broadly unchanged this week. However, commodity exporters have underperformed again, partly reversing the compression from late January to early May.



"EM credit faces a series of headwinds, which might continue to justify a cautious stance towards the asset class at current valuations", says Barclays.



The prospects for oil prices and exporters have taken centre stage for most of the past year. The recent Iran deal has likely cemented concerns that oil prices will remain low for a prolonged period of time even though the energy market effects from sanctions relief will be gradual.



Concerns about Chinese growth prospects, despite the recent signs of stabilization, have likely been a factor as a number of metals prices dropped to multi-year lows.



Of course, for commodity exporters with USD revenues and costs in local currency, FX depreciation constitutes a natural pressure valve, possibly mitigating the effects of lower commodity prices on corporates' profits, fiscal and external accounts.