Emerging markets stocks and currencies are struggling, but some market observers see opportunity with developing sovereign, meaning investors may want to revisit exchange traded funds such as the iShares J.P. Morgan USD Emerging Markets Bond ETF (NYSEArca: EMB) and the PowerShares Emerging Markets Sovereign Debt Portfolio (NYSEArca: PCY) two of the largest emerging markets sovereign debt.
While many emerging markets have garnered a bad reputation for experiencing spiraling debt defaults in face of rapid currency depreciation, the developing economies are more resilient in a weak commodities environment.
According to BlackRock, emerging market governments have accumulated less dollar debt, built up foreign reserves and adopted flexible exchange rates to obviate mistakes during the 1980s and 1990s crises. Though the current outlook for emerging markets debt is far from sanguine, some analysts see opportunity in the asset class. [Investors Turn to Emerging Market Bond ETFs for Higher Yields]
Some big name money managers are now embracing emerging markets debt.
“The negative investor sentiment on emerging markets is akin to the crisis mentality of 2008 and 2009, says Templeton Global Macro Chief Investment Officer Michael Hasenstab. He recently wrote that we’ve reached a point of maximum pessimism, and extreme sentiments usually indicate an opportunity,” reports Dimitra DeFotis for Barron’s.
Countries the money manager likes include Mexico, South Korea, Malaysia, Indonesia, and the Philippines, according to Barron’s.
EMB tracks U.S. dollar-denominated emerging market government bonds across more than thirty countries. PCY also holds a portfolio dollar-denominated debt.