Why Emerging Markets Debt? (2024)

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FAQs

Why Emerging Markets Debt? ›

Their traction has been attributed to the bonds' rising credit quality and their higher yields, relative to U.S. corporate and Treasury bonds. However, higher returns often come with an increased level of risk, and emerging market issues tend to carry higher risks than domestic debt instruments.

What are the benefits of emerging market debt? ›

EMD Sovereign Hard Currency Debt

Issuance in hard currency offers investors lower currency-exchange risk and enables small emerging countries to attract global investor.

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Why are emerging markets struggling? ›

Even though the world economy at large has proven resilient, they point out that portfolio flows to emerging markets have experienced the most pronounced decline in more than a decade - driven mainly by outflows from Russia and China - and they have now been trending down for ten years.

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Do emerging markets focus on equity or debt financing? ›

Answer and Explanation: Emerging markets focus on debt financing. Debt financing enables businesses to go to great heights along the business growth path since they can accomplish much because of the disposal of finances.

Is emerging market debt high yield? ›

Growth opportunities and attractive yields

Emerging market debt may offer higher yields than developed markets, as the economies of emerging markets may grow more rapidly than those of developed markets and have an expanding middle class expected to drive consumption.

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What is the universe of emerging market debt? ›

The EM universe remains one of the broadest and most diversified asset classes within fixed income, offering diversification by region, country, sector, currency and commodity. Today, it also exhibits a high level of disparity from an economic and monetary policy cycle perspective too.

Why do investors Favour emerging markets? ›

Growth. The biggest advantage of emerging market investments is the potential for high growth. Diversification. International investments can be a good diversifier for your investment portfolio because economic downturns in one country or region, including the U.S., can be offset by growth in another.

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Will emerging markets ever recover? ›

After a difficult year in 2023, we're seeing signs that a recovery may be brewing for emerging-market (EM) equities. For investors to regain confidence, it's important to revisit some common assumptions about EM stocks with a critical eye. It's easy to understand why investors are struggling to warm to EM.

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Why not to invest in emerging markets? ›

Emerging-markets equities tend to be more volatile than stocks in more developed markets because of a variety of risk factors.

Do I really need emerging markets in my portfolio? ›

Emerging markets, as defined by MSCI, are 24 developing countries with volatile, fast-growing economies. Emerging market investments can provide diversification and potentially rapid growth to a portfolio, but they can also be risky.

How big is the emerging market debt? ›

EMD has evolved significantly in the last two decades, given the remarkable growth in the breadth and depth of countries and the number of issuers. Since 2010, the EMD universe has nearly tripled in size, with the asset class expanding to $26 trn from around $10 trn.

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Are emerging market funds risky? ›

In a benign economic environment, investors are often willing to stretch into riskier segments of the bond market in search of higher yields. However, emerging-market (EM) local-currency bonds typically are more volatile and carry higher risks than developed market bonds.

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Why is emerging market debt good? ›

Advantages. Despite these risks, emerging market bonds offer numerous potential rewards. Perhaps most significantly, they provide portfolio diversity, because their returns are not closely correlated to traditional asset classes.

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Will emerging markets outperform? ›

Consensus earnings growth¹ for EM in 2024 and 2025 is nearly 17% and 15%, respectively, compared to less than 11% and 14% in the United States. Attractive valuations: In our view, EM equity is one of the most mispriced asset classes globally, with valuations remaining very inexpensive compared to DM equity.

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What are emerging market debt instruments? ›

Emerging markets (EM) debt refers to fixed income securities (bonds) issued by developing countries. In purchasing EM debt, investors essentially lend money to corporations or governments in developing regions in exchange for interest payments that are often notably higher than those offered in developed markets.

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What are the benefits of emerging economies? ›

Emerging market economies typically feature a unified currency, stock market, and banking system. They're in the process of industrializing. Emerging market economies can offer greater returns to investors due to their rapid growth. They also offer greater exposure to some inherent risks due to their status.

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What are the advantages and disadvantages of external debt? ›

Foreign debt can be useful as it allows the country to fund investment in different sectors, thus improving economic growth. Moreover, a country can utilize the funds received from a foreign lender to meet various expenditures. That said, one must remember that it can lead to a vicious cycle of debt.

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What is the emerging market government debt? ›

Emerging market bonds are debt instruments issued by developing countries. These bonds tend to over higher yields than Treasuries or corporate bonds in the U.S.

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