Emerging markets debt has evolved as an asset class in recent years as local currency bonds and dollar-denominated corporate debt have become much larger parts of the overall universe. Financial crises invariably force investors to reconsider long-held beliefs about risk. The bursting of the debt bubble in 2007 and the resulting deterioration in public finances across the developed world has led to a reappraisal of sovereign and credit risk, particularly in the emerging markets.
The growing recognition of developing economies’ low indebtedness, large foreign currency reserves, robust anti-inflation policies and commitment to further structural reforms has helped the asset class mitigate some of its added risk. Indeed, emerging markets bonds are now a strategic holding for an ever-expanding circle of investors.
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