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Alternative Market Briefing

Upside in emerging market debt despite uncertainty

Friday, August 30, 2013

John Peta
Benedicte Gravrand, Opalesque Geneva:

There are reasons for investing in emerging market debt. For a start, emerging market (EM) fundamentals are stronger than developed markets'. Many of them abandoned the currency pegs and floated their currencies in the past years, allowing them to accumulate foreign currency reserves. This helped them cope with 2008, and since then, those economies have gained more shares in the global equity and bond markets. EM credit ratings have improved these last few years, reflecting improving fundamentals.

"Over 45 emerging market countries are now rated investment grade, equating to over 50% of the universe," says HSBC Global Asset Management in a report on EM debt. HSBC expects EM sovereign upgrades to continue to exceed downgrades.

However, now there may be some uncertainty as what the impact of the forthcoming Fed’s QE tapering will have on EM debt. But Fitch, the ratings agency, "believes that an improvement in credit fundamentals over the last decade should make emerging markets more resilient to a liquidity shock than in the past, making a widespread wave of crises unlikely," reports MNI.

EM debt is still vulnerabl......................

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