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 dollar makes it costlier to pay off dollar-denominated bonds, but that scenario may not be as worrisome today as it was several years ago.
“Their reserves are higher, their leverage is lower, and they are relatively cheap compared to other parts of the world. Monetary policy has pushed rates in Europe to extremely low levels, which has pulled down global interest rates to distorted levels. But emerging markets have actually not been tethered to European rates,” said BlackRock.
Alternatives to EMB include the PowerShares Emerging Markets Sovereign Debt Portfolio (NYSEArca: PCY), VanEck Vectors Emerging Markets Aggregate Bond ETF (NYSEArca: EMAG), VanEck Vectors Emerging Markets Local Currency Bond ETF (NYSEArca: EMLC), SPDR Bloomberg Barclays Emerging Markets Local Bond ETF (NYSEArca: EBND) and iShares Emerging Markets Local Currency Bond ETF (NYSEArca: LEMB).
For more information on the fixed-income market, visit our bond ETFs category.
Tom Lydon’s clients own shares of EMB.