Investing in Emerging Market Debt

Advantages

  • Low correlation to developed markets is good for diversification
  • Have proven resilient to financial crises and are earning investment grade ratings in many cases
  • Sovereign emerging market debt in particular can:
    • respond to negative events by raising taxes and reducing spending
    • have access to lenders such as IMF and the World Bank
    • have large foreign currency reserves as a cushion

Risks

  • High volatility
  • Negative skewness of returns
  • Lack of transparency
  • Lack of legal and regulatory structure
  • Sovereign borrowers tend to over-borrow and there can be little recourse for foreign lenders in the event of default
For more information, see all articles on: FInancial Planning, Fixed income investments, International Investing, Investing in bonds, Portfolio Management

See also:
  • Country Risk Between Emerging and Developed Economies
  • Portable Alpha
  • Special Issues Related to International Assets
  • Closed End Country Funds
  • Analyzing Convertible Debt
  • Technical Analysis Explained : The Successful Investor's Guide to Spotting Investment Trends and Turning Points

    The Intelligent Investor: The Classic Text on Value Investing

    Financial Statement Analysis: A Practitioner's Guide, 3rd Edition

    Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)

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