The JP Morgan EMBI index of
sovereign EMD was up 14.3% to
October. Hard currency EMD
currently yields around 350bps
over treasuries. Yields of local
currency debt, meanwhile, are now
at around 6.2%. While the money
coming into EMD has seen sovereign spreads over US treasuries
compress by more than 80 basis
points in the year, with yields on
hard currency debt coming down
from 7% at the beginning of 2016,
participants believe there is still
much more value to be found
across the market.
“For any matrix you look at the
allocation to EMD is much lower
than it was a couple of years ago,”
says JC Sambor, deputy head of
emerging market fixed income at
BNP Paribas Investment Partners.
“There is still a lot of room before
it becomes bubble territory. The
flows are very much diverse and
sustainable.”
“Many countries in the emerg-
ing markets have adjusted their
balance sheets to deal with the
prospects of slower growth. You
have seen asset disposals and po-
litical regimes changing as well as
currency adjustments. With yields
in developed assets down and equi-
ties under pressure, investors have
returned to look for carry and yield
in the emerging markets.”
The yield draw for investors in
EMD is hard to ignore right now.
After a barren year-and-a- half, emerging market debt (EMD) has seen a resurgence of interest in the last few
months as foreign investors turn to
the asset for that most precious of
things right now—yield. Allocation to EMD slumped to $35.2bn
in 2015—compared to an average
of around $250bn in the three
previous years—as concerns over
a slowing economic environment,
in particular in China, checked
investment from foreign asset owners. But after a slow start, things
have gradually picked up since the
middle of this year. The third quarter of 2016 saw the highest foreign
influx of money since 2014 with
$27bn of non-resident flows into
the market, according to statistics
by the Institute of International
Finance (IIF). And it seems likely
that this will continue to increase,
according to industry participants.
“We have come through a period
2015 was a major down
year for emerging market
debt, but things are
picking up as billions flow
into the market with no
sign of slowing, writes
Sarfraz Thind.
“The flows are very much diverse and
sustainable.”
JC SAMBOR, DEPUTY HEAD OF EMERGING MARKET FIXED
INCOME, BNP PARIBAS INVESTMENT PARTNERS.