Sun, Dec 17, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Alternative Market Briefing

Other Voices – Inefficiencies in the Emerging Markets High Yield Debt Asset Class

Wednesday, February 29, 2012

From André Simon, Galloway Capital (www.gallowaycapital.com):

There is a common belief that Emerging Markets High Yield (EM HY) should pay a higher yield than their US HY peers (difference is currently around 200bps) because of EM’s lack of Rule of Law, which in turn affects EM’s recovery rate in case of a default. We at Galloway do not entirely agree with this common belief and instead argue that there is a huge market inefficiency in the EM HY asset class.

While we know that recovery value is an important issue (it would be thought that a better legal system with efficient Rule of Law would provide a higher recovery value), we see that in reality the unsubordinated debt from EMs trade at around 30% when an EM company stops coupon payments. This 30% handle is a number that we believe is not much different than in the US. Considering that we have a similar selling price in EM and the US once the company stops paying its coupons, the main difference in yield spreads between US HY and EM HY should have more to do with rate of default than with recovery value.

We recently reviewed some interesting data from JPM that compared EM HY versus US HY. In said study, from 2003 to 2010 the average yearly return has been over 300bps higher in EM (spreads usually vary between 200 to 300 bps), while EM enjoyed a 42% lower rate of default! We extracted from this JPM research the period starting in 2003 because until then the HY universe in EM was too concentrated in Soverei......................

To view our full article Click here

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Mediobanca acquires majority stakes in Swiss hedge fund[more]

    Komfie Manalo, Opalesque Asia: Listed diversified banking group Mediobanca SpA said it has acquired a majority stake in Geneva-based hedge fund firm RAM Active Investments SA (RAM AI), an active and alternative asset manager offering a range of act

  2. Launches - Ex-BlueCrest team to open over $200m hedge fund, Greg Coffey, a hedge fund star who retired at 41, is eyeing a comeback, Brevan Howard plans Greek funds as bond rally signals revival[more]

    Ex-BlueCrest team to open over $200m hedge fund From Bloomberg.com: A team of traders who left BlueCrest Capital Management earlier this year raised more than $200 million for their own hedge fund focused on Asian stocks, according to a person familiar with the matter. Ovata Capital Manag

  3. North America - Miami could attract hedge funds if SALT deductions axed[more]

    From Law360.com: For years, inertia has been Nitin Motwani's greatest foe in his attempts to lure hedge fund owners in the northeast to Miami, which he has pitched as a tropical low-tax paradise. But with the Republican tax bill proposing to eliminate deductions for state and local taxes, he's sensi

  4. Northleaf Capital Partners closes debut private credit fund on $670M[more]

    Bailey McCann, Opalesque New York: Northleaf Capital Partners has closed its debut private credit fund - Northleaf Private Credit I - on $670 million. The vehicle will invest in private credit transactions in Europe and North America, with a primary focus on lending to private equity-backed compa

  5. ...And Finally - The ongoing gun saga in the U.S.[more]

    From Newsoftheweird.com: As elder members of the First United Methodist Church in Tellico Plains, Tennessee, gathered on Nov. 16 to discuss the recent church shooting in Sutherland Springs, Texas, one of those present asked if anyone had brought a gun to church. One man spoke up and said he c