Signs of Life Are Emerging in EM Bond Inflows

A strong dollar amid rising interest rates have soured the taste for risk in emerging markets (EM) for most of the year, but signs of life could be emerging based on EM bond inflows.

Bonds in Asian countries like India and Thailand are signaling that foreign investors could be re-thinking EM bond exposure. That, however, will depend on the U.S. Federal Reserve and how tight they get with their interest rate policy.

“Overseas investors are turning into net buyers of key emerging markets bonds in Asia for the first time in months, hinting at more significant inflows if the Federal Reserve goes for a more calibrated rate tightening,” a Bloomberg article noted.

“In August, global funds have poured $1.4 billion into Indonesia bonds in the first net addition in six months, while India has seen them loading up on rupee notes of $680 million, a gain in seven months. Even Thailand saw the first inflow since May,” the article added.

Prospective investors who are looking at EM bond opportunities, but are still wary of the current market environment may want to look at actively managed funds. A prime consideration is the actively managed Global X Emerging Markets Bond ETF (EMBD).

Top Down Macro Views, Bottom-Up Research

Sub-advised by Mirae Asset Global Investments (USA) LLC, EMBD seeks a high level of total return, consisting of both income and capital appreciation, by investing in emerging market debt. EMBD primarily invests in emerging market debt securities denominated in U.S. dollars; however, the Fund may also invest in those denominated in applicable local foreign currencies.

Securities may include fixed-rate and floating-rate debt instruments issued by sovereign, quasi-sovereign and corporate entities from emerging market countries. This adds a touch of diversification to an investor’s core bond portfolio.

EMBD gives investors:

  • Experienced Portfolio Managers: EMBD’s portfolio managers have extensive track records in actively managed emerging market debt strategies.
  • Competitive Cost: At a 0.39% total expense ratio, EMBD offers the outperformance potential and risk management of active portfolio managers at a competitive cost.
  • High Yield Potential: By targeting emerging market debt securities, EMBD aims to offer high yields with low correlations to other fixed income securities.

“EMBD’s portfolio managers incorporate both top-down macro views consistent with the firm’s Investment Committee and bottom-up fundamental research to evaluate the investment attractiveness of select countries and companies that are believed to offer superior risk-adjusted returns,” the Global X website noted.

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