New York: The world’s largest asset manager is green-lighting a shift of capital from developed nations where interest rates are low, or even negative, to pursue emerging-market bonds for better returns.
The UK’s vote to leave the European Union has accentuated the global scarcity of yield, which is the main driver behind the tightening risk premium in developing-nation bonds, BlackRock Inc. said in a research note on Monday. The firm called the end of a three-year bear market for the asset class in February, citing a shift in dollar strength fuelled by monetary policy divergence in developed markets and a stabilisation of commodity prices and emerging currencies.
“We now finally see EM meeting the necessary conditions to receive what we expect to be a great migration of money fleeing the negative rates in developed markets,” BlackRock emerging-market debt managers including New York-based Pablo Goldberg and Sergio Trigo Paz in London, wrote in the note. “After being mostly defensive about the asset class since 2013’s ‘taper tantrum,’ we believe now is the time for investors to consider warming up to EM risk.”
Developing-nation debt has rallied this year as commodity prices stabilised, China’s economic outlook improved and currency volatility subsided. Dollar-denominated bonds have returned 12 per cent since the end of 2015, while local-currency securities gained 15 per cent, according to JPMorgan Chase & Co. indexes. Trading volume increased 6 per cent to $1.3 trillion (Dh4.77 trillion) in the first quarter of this year thanks to a more dovish Federal Reserve, with concern over China easing, and higher oil prices leading to asset-price recovery, according to EMTA, the New York-based association for emerging-market debt trading and investment.
