Buy Emerging Market Local Debt, Or Focus On Bad Loans?
Barron’s, June 23, 2016 – “…there are reasons investors should be positive on emerging market debt: emerging markets have issued roughly $65 million in euro-denominated bonds so far this year, and Pavilion Global Markets writes that emerging market debt is “set for a record year.”
“Argentina, Russia and Saudi Arabia look set to be the most interesting Eurobond issuers this year. With more than USD 65 billion of Eurobond issues year to date and some countries still in need to finance their budgets, 2016 will be another great year for the global bond market. The Fed’s dovish outlook of last week further supports our view that EM debt – both in hard and domestic currency – should continue to do well.
Going the Eurobond way was quite popular with EM governments and corporates in the past few years. Record-low yields in developed markets and relatively high GDP growth in emerging markets and strong demand from investors seeking yield/risk proved to be encouraging factors in the global bond market. A case in point was Argentina’s April 2016 Eurobond issue, which was three times oversubscribed by investors, with $65 billion worth of bids (at 7.5% coupon) …
We’ve been bullish on EM debt since earlier in the year, we’ve noticed that emerging market U.S. dollar (USD) debt has outperformed local debt. Pending no Fed hikes this year, EM local debt (as well as several EM currencies) could start outperforming USD EM debt in the months to come.”