Actuarial news and views from Cape Town and beyond

Emerging Market Bonds Trumping Global Assets

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According to an article from Bloomberg, fears that depreciating currencies in emerging markets may blow up their bond markets may be unsubstantiated.

Dollar denominated bonds sold by companies in emerging markets are still up 2.3% this year to date, trumping other assets as shown in the graph below.

The fear was that because their currency was depreciating, companies may no longer be able to afford to repay their debts which are denominated in dollars. However, a lot of the corporate bonds from emerging markets are issued by exporters, who have seen an increase in their income due to the depreciation, so defaults will not be as widespread as people think.

According to analyst Shameila Khan, “The vast majority of the companies are beneficiaries of the currency depreciation. They are not a systematic risk.”

About 30 percent of dollar debt outstanding is sold by oil and materials producers, two major export sectors, according to data compiled by Bloomberg. Falling commodity prices surely undermine the companies, but they are largely unaffected by the exchange-rate declines because they receive revenue in dollars and have most of their costs in local currencies.

While some companies are at risk it is spread out enough that the risk is manageable.

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