Record year for emerging corporate bonds
The past 24 hours have brought news of more fund launches targeting emerging corporate debt; Barings and HSBC have started a fund each while ING Investment Management said its fund launched late last year had crossed $100 million. We have written about the seemingly insatiable demand for corporate emerging bonds in recent months, with the asset class last month surpassing the $1 trillion mark. Data from Thomson Reuters shows today that a record $263 billion worth of EM corporate debt has already been underwritten this year by banks, more than a fifth higher than was issued in the same 2011 period (see graphic):
The biggest surge has come from Latin America, the data shows, with Brazilian companies accounting for one-fifth of the issuance. A $7 billion bond from Brazil’s state oil firm Petrobras was the second biggest global emerging market bond ever.
The top 10 EM corporate bonds of the year: Petrobras issued the two biggest bonds of $7 billion and $3 billion, followed by Venezuela’s PDVSA and Indonesia’s Petramina. Brazil’s Santander Leasing was in fifth place, Mexican firms PEMEX and America Movil were sixth and seventh. Chilean miner CODELCO, Brazil’s Banco do Brasil and Russia’s Sberbank also entered the list.
The hunger for yield is trumping any concerns about the companies themselves or even broader emerging market risks. So far investors have not been disappointed; emerging corporate debt on JP Morgan’s benchmark CEMBI index have delivered dollar-based returns of around 15 percent this year, easily outstripping the 10 percent gains on global corporate debt.
No BRIC without China
Jim O’ Neill, creator of the BRIC investment concept, has been exasperated by repeated calls in the past to exclude one or another country from the quartet, based on either economic growth rates, equity performance or market structure. In the early years, Brazil’s eligibility for BRIC was often questioned due to its anaemic growth; then it was the turn of oil-dependent Russia. Over the past couple of years many turned their sights on India due to its reform stupor. They have suggested removing it and including Indonesia in its place.
All these detractors should focus on China.
China’s validity in BRIC has never been questioned. Aside from the fact that BRI does not really have a ring, that’s not surprising. China’s growth rates plus undoubted political and economic clout on the international stage put it head and shoulders above the other three. And after all, it is Chinese demand which drives a large part of the Russian and Brazilian economies.
Yield-hungry funds lend $2bln to Ukraine
Investors just cannot get enough of emerging market bonds. Ukraine, possibly one of the weakest of the big economies in the developing world, this week returned to global capital markets for the first time in a year , selling $2 billion in 5-year dollar bonds. Investors placed orders for seven times that amount, lured doubtless by the 9.25 percent yield on offer.
Ukraine’s problems are well known, with fears even that the country could default on debt this year. The $2 billion will therefore come as a relief. But the dangers are not over yet, which might make its success on bond markets look all the more surprising.
Perhaps not. Emerging dollar debt is this year’s hot-ticket item, generating returns of over 10 percent so far in 2012. Yields in the so-called safe markets such as Germany and United States are negligible; short-term yields are even negative. So a 9.25 percent yield may look too good to resist.
Currency hedging — should we bother?
Currency hedging — should we bother?
Maybe not as much as you think, if we are talking purely from a equity return point of view — according to the new research that analysed 112 years of the financial assets history released by Credit Suisse and London Business School this week.
Exchange rates are volatile and can significantly impact portfolios — but one can never predict if currency moves erode or enhance returns. Moreover, hedging costs (think about FX overlay managers, transaction costs, etcetc).
from MacroScope:
Australia’s SWF lags in returns
Australia's Future Fund reveals that the fund's mixed asset portfolio (excluding Telstra holding) returned 5.6 percent in the third quarter.
The fund has just over 10 percent in Australian equities, 22.8 percent in global equities. Safer instruments dominate, with debt holdings at 24 percent and cash at 31 percent.
Cheers to double digit real returns
It’s good to drink it, but it seems good to sit on it too.
Fine wine, yielding double-digit returns, is low risk and good diversifier given its weak correlation to the return of asset classes — according to a fund which invests in fine wine.
