Bubble risk as "tourist" investors flood into emerging market debt
By Karin Strohecker and Sujata Rao
LONDON Aug 15 (Reuters) - Double-digit returns in emerging market corporate debt have spurred a record buying spree, forcing yields to 13-month lows and raising the risk that an external shock, potentially from the U.S. or Chinese economies, might produce a dramatic exit.
Dollar debt issued by firms from riskier and less developed countries has been among the year's best performing assets, yielding more than 11 percent, according to JPMorgan's emerging market (EM) corporate debt index, the CEMBI Broad.
The average yield has fallen 150 basis points (bps) this year to about 5.2 percent, dropping more than both EM sovereign debt and developed-country corporate debt yields, which have been falling due to Western central bank bond-buying schemes.
Investment-grade U.S. corporate debt yields average 3.3 percent, equivalent sterling-denominated bonds yield 1.8 percent while euro-denominated equivalents are even lower.
In the past six weeks, investors have pumped a $18 billion into emerging debt funds, a record run, Bank of America Merrill Lynch data shows. A significant part of this will have flowed into corporate bonds, analysts say.
Investors attribute much of this exuberance to funds that do not normally invest in emerging markets, "tourists" or "cross-over" investors, who have ventured in solely for yield.
PineBridge Investments' emerging corporate debt analyst John Bates, whose firm has nearly $81 billion of assets under management, sees this factor as a risk.
Developments, such as a change in U.S. interest rate expectations or concerns over the Chinese economy, can put such investors to flight, because unlike dedicated EM debt managers they are less used to the sector's volatility, he said. Continuación...