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Credit emerges uncrunched

Interest in emerging market high-yield debt is at an all-time high.

In the middle of a credit crisis, it is somewhat ironic that Ashmore Investment Management has announced a new emerging markets high-yield corporate fund and Credit Suisse has created a new index for such securities.

In previous financial crises there’s little chance that investors would have even considered buying emerging markets debt, never mind paper issued by non-investment-grade corporates. These two breakthrough launches are another indication of the growing maturity and sophistication of emerging market debt.

The initiatives from Ashmore and Credit Suisse also show that this debt can no longer be viewed as a homogenous entity, with emerging sovereign and corporate bonds lumped together and considered as a single asset class. But just as local-currency debt has established itself as a separate asset class over the past five years, now it’s the turn of credit.

Throughout the 1990s and at the turn of this century the emerging markets were, to all intents and purposes, sovereign debt. That is no longer the case. Emerging government bond issuance, except in Africa, is growing at a restrained pace. There is now three times more emerging corporate bond issuance than that from sovereigns. This year, JPMorgan estimates that corporates will place more than $150 billion of debt in the international capital markets, compared with $111 billion last year.

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