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Emerging Market Companies Are Tapping The U.S. Debt Market At Record Levels

Jayson Derrick

Companies based in emerging markets are tapping the US debt market at record levels. According to a Bloomberg report, debt issuance from emerging companies that are denominated in U.S. dollars soared 159 percent so far in 2017 to $160 billion.

Emerging market companies suffered a brief setback after President Donald Trump's election win last November when emerging-market assets plunged. However, emerging market assets quickly recovered their losses and bonds are yielding 4 percent which is even higher than U.S. investment-grade and high-yield debt.

A Better Investment Option?

Emerging market companies are having no problems finding American investors that prefer shorter-dated debt (on average of 6.3 years versus 10.8 years for American investment-grade debt), higher returns, and a better insulation against U.S. interest rates that are expected to rise.

Also important to keep in mind is the fact that the size of the debt market from emerging economy companies stands at $433 billion, which is around one-tenth the size of the U.S. investment-grade credit market.

"You want to be less sensitive to U.S. rates, but you still want to diversify and you still want to play the EM catch-up growth story," Jean-Dominique Butikofer, head of emerging markets for fixed income at Voya Investment Management told Bloomberg, "You're going to gradually add emerging-market corporates."

Here is a quick summary of the performance of several emerging market ETFs since the start of 2017 and over the past year.

  • Vanguard Emerging Markets Stock Index Fd (NYSE: VWO) +13 percent year-to-date, +16 percent over the past year.
  • iShares MSCI Emerging Markets Indx (ETF) (NYSE: EEM) +15 percent year-to-date, +17 percent over the past year.
  • WisdomTree India Earnings Fund (ETF) (NYSE: EPI) +23 percent year-to-date, +27 percent over the past year.
  • iShares MSCI China Index Fund (NASDAQ: MCHI) +17 percent year-to-date, +21.5 percent over the past year.
  • iShares MSCI Brazil Index (ETF) (NYSE: EWZ) +12 percent year-to-date, +27 percent over the past year.

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