Emerging Markets Corporate Debt: A Maturing Asset Class | Capital Group

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Investment Insights

September 2012

Emerging Markets Corporate Debt: A Maturing Asset Class

In recent years, emerging markets corporate debt has become a driving force in the fixed-income markets of developing nations as the sector has grown into a large, broadly diversified universe of investment grade and high yield securities. The EM corporate market is primarily dollar-denominated, allowing investors to mitigate most of the currency risk. And, importantly, the bonds typically offer significantly higher yields than comparable debt issued by companies in developed nations. While the liquidity premium comes with some unique sovereign- and credit-specific risks, experienced investors can seek to reduce those risks through robust global credit research. The result can be a dollar-denominated corporate bond portfolio, broadly diversified across countries and industries, that can capture the growth and improving credit profile of a broad range of corporate issuers.

Although generally less familiar to investors than emerging markets sovereign debt, EM corporate bonds are coming to market at more than double the pace of their sovereign counterparts.

In the past two years, corporate debt issuance in the emerging markets has increased to $398 billion, compared to $172 billion in sovereign issues. That trend has accelerated in the face of the European sovereign debt crisis, as global investors seek alternative sources of attractive yields and issuers seek stable sources of funding.

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