Looking ahead, if the Federal Reserve hikes rates, emerging market companies that borrowed overseas are more susceptible to foreign capital swings and could find it more difficult to refinance debt. Moreover, a strengthening USD makes it costlier to pay off dollar-denominated bonds.
“What’s at risk is not the country.…It’s the credit risk of the corporates,” Jan Loeys, chief investment strategist for J.P. Morgan, said in the WSJ article.
J.P. Morgan anticipates default rates among emerging-market high-yield corporate issuers to hit 5.4% this year from 3.2% in 2014. In contrast, Fitch Ratings calculates that less than 2% of U.S. junk bonds are expected to default this year.
iShares J.P. Morgan USD Emerging Markets Bond ETF
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Max Chen contributed to this article. Tom Lydon’s clients own shares of EMB.