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Emerging Market (EM) corporate debt set to end dominance of Developed Market (DM) corporate debt

The corporate debt market in emerging markets is forecasted to outpace the growth of the corporate debt market in the developed world. “This is an indication of the growing issuance and acceptance of EM corporate debt among investors,” says David Kunselman, senior portfolio manager with Excel Investment Counsel. “Many EM corporate debt is now ranked investment grade and offer substantially higher yields than government debt,” he adds – making the asset class increasingly attractive.

According to Credit Suisse researchi, EMs would make a “47% contribution to the gain in the value of the global corporate bond market” by 2030. As a result, the “dominance” of DMs “within the global corporate bond market universe will decline from 85.6% in 2014 (or 94.6% in 2005) to 63.6% by 2030.” Effectively, EM corporate debt will account for 36.4% of total value of the global corporate bond market, up from 5.4% in 2005, representing an almost seven-fold increase.

percentage total growth
Source: Emerging capital markets: The road to 2030
Credit Suisse Research Institute, July 8, 2014

The gain in the EM corporate debt market will come primarily at the expense of the United States market, whose share will decline from 45% to 33% during the 2014-2030 period. The largest increase in corporate debt issuance will come from China, whose market share will increase from 5.8% in 2014 to 21.7% in 2030. Russia, India, Saudi Arabia and Turkey are also expected to make gains in global market share.

Although EM corporate debt remains is currently an underinvested asset class, it is evident that it is set to gain favor among an increasing number of investors,” says Kunselman.

 

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