Sudden rush to emerging debt funds highlights scarcity of bonds
By Sujata Rao
LONDON, July 27 (Reuters) - Emerging market debt funds are enjoying a bumper inflow for the first time in three years, but portfolio managers are struggling to invest the bonanza as new bond sales have declined and trading volumes have evaporated.
In a world awash with negative-yielding bonds - more than $10 trillion of the global bond market at last count - and with expectations of further monetary easing rife, there has been a sudden scramble for emerging market debt.
Funds tracked by EPFR Global and JPMorgan have taken in a net $20 billion so far in 2016. The data, which captures a small slice of the global action, showed a record $4.7 billion in inflows last week.
Most interest has centred on dollar-denominated debt, generally seen as safer than bonds in domestic currencies. And given that new hard currency bond sales have not recovered since the latest emerging markets shakeout in February, a shortage has emerged to drive up prices.
Emerging market companies will not sell more than $220 billion this year, JPMorgan estimates, contrasting that with the 2012-2014 period when annual corporate bond sales averaged $355 billion. Turmoil in Turkey after a failed coup may impact markets further, with two issuers already postponing their bond plans.
Sovereign debt sales are up this year thanks to mega-deals from Argentina and Qatar. But net new supply, after accounting for maturities and coupon payments, will be just over $50 billion, JPM says.
According Yerlan Syzdykov, head of emerging debt at Pioneer Investments, one of the funds he runs is more than a third larger than it was in early-2016.
"We are happy to have this problem but the difficulty is things are progressively getting more expensive. When money comes in, funds have to buy. Effectively you are a forced buyer," Syzdykov said. Continuación...