Tue, Feb 28, 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. Institutional investors plan to raise allocations to alternative assets in 2017[more]

    Komfie Manalo, Opalesque Asia: A survey by Context Summits Miami showed that nearly 72% of institutional investors and family offices plan to raise their allocations to alternative asset managers this year, suggesting continued strong demand for the industry. "As many large, brand name f

  2. Comment - Mortgages, mergers and hedge fund fees, Fairholme's Berkowitz responds to court ruling against hedge fund suits of Fannie Mae[more]

    Mortgages, mergers and hedge fund fees From Bloomberg.com: Yesterday the U.S. Court of Appeals for the D.C. Circuit handed down an odd decision in a lawsuit over the government's nationalization of Fannie Mae and Freddie Mac. The key issue is what's called the "Third Amendment," the 2012

  3. Investing - Hedge funds continue to chase the herd in record Momentum wager, Marshall Wace bets grocer Sainsbury may need rights offering, Hedge fund net exposure has started to retreat, David Tepper's Appaloosa fund makes a huge buy, The 10,000-mile journey to Short Australia, Skeptical hedge fund investors grill Evan Spiegel about Snap's I.P.O.[more]

    Hedge funds continue to chase the herd in record Momentum wager From Bloomberg.com: Hedge funds can't get enough of momentum - even if it means embracing an investing strategy they hate. Loosely defined as betting on shares that went up the fastest over the preceding nine-to-12 months, h

  4. Opalesque Exclusive: Swiss investors take fund seeding and acceleration into their own hands[more]

    Benedicte Gravrand, Opalesque Geneva: Banque Bonhote, a 200-year old Swiss private bank, last year launched a community of investors - heads of Swiss family and advisory offices and wealth managers - with the aim of co-investing in the kind of managers they wanted to invest in, either by way of s

  5. K2 Advisors : Why We Like Activist Hedge Fund Strategies and Some Thoughts on Alpha[more]

    Matthias Knab, Opalesque: Rob Christian, Senior Managing Director, Head of Research K2 Advisors, Franklin Templeton Solutions, writes on Harvest Exchange: When d