New issuance of emerging markets dollar-denominated corporate debt continues to surge, driven by growing investor demand, low interest rates and improved access to global credit markets, according to Market Vectors’ fixed income portfolio manager Fran Rodilosso. Rodilosso noted that emerging markets have already had a record year in terms of issuance of dollar-denominated corporate bonds, the culmination of seven years of steady growth for the asset class.
“A cursory look at the growing volume of new issuance might suggest a bubble could form in the asset class,” said Rodilosso. “However, it is interesting to note, of the approximately $220 billion in dollar-denominated debt issued from emerging markets so far this year, less than $35 billion is rated below investment grade. In 2012, issuance thus far by high yield borrowers has actually been lower than in 2010 or 2011.”*
Rodilosso noted that demand may be further driven by the relatively small allocations many investors have had to emerging markets corporate debt, relative to their exposure to emerging markets sovereign debt. This is in spite of the fact that the dollar-denominated emerging markets corporate universe is now larger than the dollar-denominated sovereign universe as defined by market capitalization of widely followed indices.
“A decade ago, bonds of many emerging markets companies were crowded out of the market, by government issued debt. In today’s yield-hungry world, it is a different story. These companies are able to issue debt at relatively low rates and investors are able to further diversify their portfolios. Currently, investors are earning higher yields from these bonds than what is available from similarly-rated U.S. domestic corporate debt,” Rodilosso said.Mr. Rodilosso has more than 20 years of senior level experience in emerging markets, high-yield debt research and portfolio management. He currently manages seven Market Vectors fixed income ETFs, Fallen Angel High Yield Bond ETF (NYSE Arca: ANGL), International High Yield Bond ETF (NYSE Arca: IHY), Emerging Markets High Yield Bond ETF (NYSE Arca: HYEM), Emerging Markets Local Currency Bond ETF (NYSE Arca: EMLC), LatAm Aggregate Bond ETF (NYSE Arca: BONO), Renminbi Bond ETF (NYSE Arca: CHLC) and Investment Grade Floating Rate ETF (NYSE Arca: FLTR). (*Source = BofA/Merrill Lynch)