Emerging markets investors are once again back as world economies begin the recovery process from Covid-19, but they’re not simply throwing darts at a board. EM investors are exercising more due diligence and thus, are more picky with their investments.
“Investors have returned to emerging markets after the coronavirus shock, helping to encourage a surge in government debt issuance,” a Financial Times report said. “But that revival in confidence has its limits. While some governments will continue to fund themselves with ease, others are finding it more difficult, raising questions about debt sustainability down the line. The overall bounceback from the panic selling that gripped markets in March has been impressive.”
“According to Moody’s, the rating agency, EM countries with investment-grade ratings issued $119 billion worth of foreign currency-denominated overseas debt in the year to mid-September, more than the $114 billion issued throughout 2019,” the report added.
Additionally, Moody’s is showing that a recovery in debt issues has accelerated since the pandemic took hold of the markets back in March, but have stalled since August.
“The normalisation of financial conditions since April is starting to lose speed,” said Rahul Ghosh, Moody’s senior vice-president for emerging markets research. “We are going to see investors make a pivot to thinking about the prospects for economic recovery, and what that means in terms of financing deficits and debt sustainability.”
Opportunities in EM Debt
One corner of the bond market where investors can get higher yields is EM. Investors can get broad-based EM exposure with the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG).
IEM seeks to track the investment results of the MSCI Emerging Markets Investable Market Index. The index is designed to measure large-, mid- and small-cap equity market performance in the global emerging markets.
- Exposure to a broad range of emerging market companies
- Low cost, comprehensive access to stocks in emerging market countries
- Use at the core of a portfolio to diversify internationally and seek long-term growth
Another fund to look at is the iShares MSCI Emerging Markets ETF (NYSEArca: EEM). EEM seeks to track the investment results of the MSCI Emerging Markets Index.
The fund generally invests at least 90% of its assets in the securities of its underlying index and in depositary receipts representing securities in its underlying index. The index is designed to measure equity market performance in the global emerging markets. The underlying index will include large- and mid-capitalization companies and may change over time.
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