Once considered a niche of a niche, emerging market debt has come to the fore as a way to access the world’s most dynamic region. Here’s where we see the opportunity.
Emerging market debt (EMD) is no longer considered a niche asset class thanks to the substantial growth of its underlying regional asset sub-classes over the last few years. As the largest regional portion of the EM USD debt market, Asia offers a unique blend of scalable opportunities that deserves specific attention. The most widely used benchmark (the JP Morgan Asia Credit Index) measures the Asian USD bond universe at around US$900bn, comparable to other fixed income indices such as EMD hard currency corporate and US high yield index.
Potential diversification benefits
With a continuous flow of debt issuers from the growing economies around Asia, opportunities to diversify and capture value consistently present themselves. The market now provides access to more than 450 issuers across 16 different economies. While Chinese issuers used to constitute a majority of the market, nowadays they represent only c.30% of the index, offering the potential benefit of exposure to various other heterogenous economies across Asia.
Overall, EM corporate credit represents approximately 60% of the index, while sovereigns and quasi-sovereigns make up the remainder.
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