Emerging market debt mountain grows too large for comfort

martes 19 de abril de 2016 19:00 GYT

By Saikat Chatterjee

HONG KONG, April 20 (Reuters) - Global investors are turning more cautious over the outlook for emerging market sovereign bonds, faced with rich valuations and increasing supply from countries struggling with slowing growth.

Developing nations have rushed to borrow billions of dollars in cheap funds as the U.S. Federal Reserve and other central banks launched aggressive bond buying programmes that have lowered long-term rates and pushed investors into riskier but high-yielding assets.

"The extent of the recent rally that has occurred across all emerging market asset classes is starting to look a little stretched in the short term," said Richard House, global head of emerging market debt at Standard Life Investments which manages $79 billion in fixed income. "This is occurring at a time when sovereign issuance is about to increase significantly."

Adding to record supplies in recent weeks is Argentina, a junk-rated issuer, hoping to raise up to $15 billion, its first such sale since its 2001 default.

The Latin American country is not alone. The first quarter of 2016 has been prolific for emerging market sovereign issuers with countries and quasi-sovereign names selling $44 billion of debt, the highest in more than 15 years, according to Thomson Reuters data.

The mountain of debt prevails in spite of economic warnings. The International Monetary Fund cut its outlook for the world economy for the fourth time last week, citing the poor quality of emerging market growth as risk factors, among others.

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