An asset class that has recently become more prominent is emerging market bonds. As a number of high growth economies were relatively unscathed by the economic crisis they are seen to be doing well compared to some developed economies. Among the high growth economies are those benefiting from the economic rise in the east, examples being Malaysia, Indonesia and Thailand.
Many of the countries of Africa, Asia and Latin America can now be seen as high growth markets. In the past some countries of these regions have been seen to pursue reckless economic strategies inspired by offbeat ideologies, but now they are putting their house in order. Many of these developing countries have a tight grip on the economic reins and are looking for rapid development and an improvement in the welfare of their populations.
Although many developing markets previously issued their debt in foreign currency, they are increasingly issuing local currency debt. One reason for this is the increased emphasis on social policy that is leading to the growth of pension and investment funds within developing economies. These institutions are interested in buying local currency bonds as a way of hedging against long term financial uncertainty, and outside investors are also looking at investing in local currency debt.
Credit ratings in some developing countries are improving and the government debt is therefore gaining a higher rating. As the bonds often offer a higher yield than the sovereign debt of developed countries this is becoming an attractive option for investors. Foreign investors may also hope to profit from the high growth rates in these economies and make a gain from their investment.
The increasing prospects of high growth economies mean that investors can diversify their portfolios by acquiring developing country debt instruments. The special features of emerging market debt make it into a completely different asset class. The political, currency and credit risks are real but so are the chances of profitable investment.
The strong monetary policy evident in many high growth economies of Asia and Latin America gives some prospect of low inflation and an appreciating currency. The investor can never ignore the risks of investing in a different market and a foreign currency but the economic fundamentals in many countries suggest that the investment will show a profit. Compared to developed countries where yields on many classes of investment are low the developing country debt instruments show promise as an investment that will yield gains.
The emerging economies are not one entity but a large number of different countries and the potential investor must look separately at each investment opportunity. As usual the potential buyer will weigh up the risks presented by each possible investment and will study the economic and financial environment in each country. There are differences in the economic environment and the economic strategy between one high growth economy and another and these difference should be researched carefully.
Investing in emerging market bonds is likely to grow in prestige as an investment opportunity. When a high growth economy shows that its economic and fiscal discipline is yielding results the sovereign debt becomes more attractive to purchasers. In addition to sovereign debt, the bonds of private companies are also likely to become increasingly prominent as a chance for investors to diversify their portfolio.
Many of the countries of Africa, Asia and Latin America can now be seen as high growth markets. In the past some countries of these regions have been seen to pursue reckless economic strategies inspired by offbeat ideologies, but now they are putting their house in order. Many of these developing countries have a tight grip on the economic reins and are looking for rapid development and an improvement in the welfare of their populations.
Although many developing markets previously issued their debt in foreign currency, they are increasingly issuing local currency debt. One reason for this is the increased emphasis on social policy that is leading to the growth of pension and investment funds within developing economies. These institutions are interested in buying local currency bonds as a way of hedging against long term financial uncertainty, and outside investors are also looking at investing in local currency debt.
Credit ratings in some developing countries are improving and the government debt is therefore gaining a higher rating. As the bonds often offer a higher yield than the sovereign debt of developed countries this is becoming an attractive option for investors. Foreign investors may also hope to profit from the high growth rates in these economies and make a gain from their investment.
The increasing prospects of high growth economies mean that investors can diversify their portfolios by acquiring developing country debt instruments. The special features of emerging market debt make it into a completely different asset class. The political, currency and credit risks are real but so are the chances of profitable investment.
The strong monetary policy evident in many high growth economies of Asia and Latin America gives some prospect of low inflation and an appreciating currency. The investor can never ignore the risks of investing in a different market and a foreign currency but the economic fundamentals in many countries suggest that the investment will show a profit. Compared to developed countries where yields on many classes of investment are low the developing country debt instruments show promise as an investment that will yield gains.
The emerging economies are not one entity but a large number of different countries and the potential investor must look separately at each investment opportunity. As usual the potential buyer will weigh up the risks presented by each possible investment and will study the economic and financial environment in each country. There are differences in the economic environment and the economic strategy between one high growth economy and another and these difference should be researched carefully.
Investing in emerging market bonds is likely to grow in prestige as an investment opportunity. When a high growth economy shows that its economic and fiscal discipline is yielding results the sovereign debt becomes more attractive to purchasers. In addition to sovereign debt, the bonds of private companies are also likely to become increasingly prominent as a chance for investors to diversify their portfolio.
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