Thu, Apr 17, 2014
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

Banner
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. Opalesque Exclusive: European stock-picking fund up 19% YTD, bets on small caps’ high cash level[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: Here is a European long/short equity fund that has been beating the odds since its 2008 inception by employing its own investment model, frequent company visits

  2. CTAs could face new challenges in a rising rates environment[more]

    Bailey McCann, Opalesque New York: CTAs have taken a beating performance wise lately, and asset flows reports show that investors aren't sticking around to see how the movie ends. Now, a new white paper from Roy Niederhoffer and Coen Weddepohl notes that as interest rates start to tick back u

  3. Investing – Big hedge funds bought Puerto Rico's junk bonds, Fidelity explores new trading venue amid flash trade concerns, Crisis-era Greek bonds reward early buyers with big effective returns, Cargill unit discloses stake in Freddie preferred[more]

    Big hedge funds bought Puerto Rico's junk bonds From Reuters.com: Several large hedge funds doubled down on Puerto Rico in last month's giant bond sale despite the U.S. territory's financial struggles, the Wall Street Journal reported, citing confidential documents reviewed by the newspa

  4. Opalesque TV: First Trust Advisors launches liquid alternatives platform[more]

    Bailey McCann, Opalesque New York: First Trust Advisors is launching a new liquid alternatives platform aimed at building on the companies existing alternative ETFs offering by adding hedged mutual funds. Senior Portfolio Managers Rob Guttschow and John Gambla recently sat down in an

  5. Commodities – Popular value fund manager David Iben bets on Russia, gold,[more]

    From Reuters.com: With large bets on Russia and North American gold miners, one of the best performing stock pickers in the wake of the 2008 financial crisis is back with a new fund that reflects his deep aversion to following the crowd. In the Kopernik Global All-Cap Fund, David Iben is follo