The annual meeting of EMTA, formerly the Emerging Market Traders Association, has for the past few years been an exercise in watching analysts berate themselves for not being sufficiently bullish about the previous year. The 2005 meeting was no exception: no one thought, a year ago, that emerging-market debt would return anything like the 9% it ended up posting over the course of the year.
More to the point, the hot new asset class of 2005, local markets, was a bit of a dud, returning a mere 2.5%. Everybody at the meeting agreed that local markets were the way of the future. Joyce Chang, head emerging-market analyst at JPMorgan, said that fully 80% of new inflows into emerging markets were now local-targeted. At the same time, though, no one seemed very excited about local markets.
Not far enough
Part of the problem is that for the time being there are only two countries in the emerging markets – Brazil and Mexico – where international investors can take substantial positions at the long end of the domestic yield curve. Elsewhere, domestic markets still aren’t sufficiently developed, or don’t go out far enough, to make such trades possible.