We believe EM corporate debt is supported by falling yields in the developed world as they turn negative out to ever increasing maturities. Investors, concerned by global risks, are accepting losses on their capital but are, in our view, overlooking the risks embedded in developed markets at current levels, underscoring the pervasiveness of the current negative yield environment.
Furthermore, we believe growth in EM is on course to reach an economic inflection point this year as fundamentals continue to improve. In our view, investing in EM corporates is about capturing the structural premium offered over their developed market counterparts as EM countries gain an increasing share of global GDP.
Put differently, the active management of EM corporate debt can give investors the optionality to scale into different risk and return drivers according to their objectives. These credits tend to be under-researched, under-owned and unloved by mainstream investors, which can create mispricing and opportunity in spite of its status as a rapidly maturing asset class.
By Robert Simpson – Insight Investment, a BNY Mellon company