Emerging Markets Bonds

Emerging Markets Bonds

by Joanne Roberts, Director - June 2010

Investors wanting to spread their investments from equities often use corporate bonds or Gilts. This is lending money to companies and governments in return for interest payments and repayment of capital on a certain date.

Corporate debt issued by emerging market countries is becoming more popular and offers a way for investors to benefit from emerging economic growth without the higher risk volatility seen with equity markets.

Emerging market countries have increased their popularity and the forecast for emerging market bond debt is good.

Emerging markets in the 1970’s and 1980’s were a mix of unstable governments, debt and currency crises. Markets have developed, although the Asian crisis, Russian default in 1997 and Argentine default in 2001 still keep the economies in the emerging markets category.

Evidence now suggests that emerging market bonds may be a comparatively safer investment than some bonds issued by ‘developed’ governments.

The problems seen by Greece, Portugal and Spain has mean their sovereign debt being downgraded to ‘junk’, ‘A-‘ and ‘AA’ respectively.

Sovereign debt of Mexico, Russia and Brazil is now termed ‘investment grade’ and therefore carries a low risk of the government’s defaulting on payments.