29 de enero de 2016 / 14:41 / en 2 años

Emerging markets shifting back to the shadows

* Bond volumes plunge to multi-year lows

* Supply and demand under pressure

* EM bonds tipped to become niche product

By Michael Turner

LONDON, Jan 29 (IFR) - Emerging market bond issuance has fallen to its lowest level in six years, sparking fears that after years of huge growth, the asset class is shrinking back to a niche product.

Just US$23.5bn of emerging market bonds have been issued so far in 2016, with more than a fifth of that coming from Pemex’s US$5bn triple-tranche deal on Thursday, as whipsawing markets continue to take their toll on issuer and investor confidence.

This is the weakest start to a year since 2009, when only US$15.6bn of deals were printed in January, according to Thomson Reuters data.

CEEMEA has been hit particularly hard, clocking up just US$4.19bn of public deals in January - the lowest since 2002.

The asset class’s troubles are not just consigned to faltering supply. The buyside has been retrenching too, with investors ranging from the leading institutional money managers to retail accounts all suffering big outflows.

The process began following the “taper tantrum” in May 2013 - when the bond markets began to factor in the ending of the quantitative easing programme in the US - but has accelerated over the past 18 months as the collapse in commodity prices and global political tensions have squeezed the market.

“The one difference between this sell-off and others is that this is more prolonged, so it makes it harder for clients,” said one leading investor, comparing the current challenges with previous EM crises.

Some so-called crossover global accounts and hedge funds have exited emerging market debt altogether, while other asset managers have shut dedicated EM portfolios.

“The asset class is smaller. A lot of the crossover guys, the global funds, have seen their portfolios get hurt and have pulled out,” said the investor.


Last year more emerging markets bond funds closed than were launched, according to Lipper, the first time this has happened since the company began tracking the data in 2006.

Some US$3bn has exited EM bond funds in the past two weeks alone, according to EPFR Global, another data provider, which tracks mostly retail funds. The past week was the 24th out of the last 27 to see outflows.

Some of the market’s biggest fund managers have also been suffering withdrawals, and for several quarters. Aberdeen Asset Management reported net outflows of £9.1bn in the final quarter of 2015. It was the 11th consecutive quarter of net outflows from its funds.

“I can definitely picture the market going back to how it used to be, where EM is seen as a much smaller part of a portfolio than today.”

Another specialist EM fund manager, Ashmore, has seen its assets fall by a third over the past 18 months to less than US$50bn, thanks partly to investor withdrawals but also to weak performance.

These outflows are counterbalanced to a degree by bond maturities and coupon payments - investors receive an average of US$32.6bn a month, according to ICBC Standard Bank.

Still, the situation is fragile. “Fund managers’ cash levels - which provide their first buffer against outflows - are low,” said David Spegel, head of global emerging market strategy at ICBC Standard Bank.

This could lead to even more emerging market holdings being dumped. “Low investor cash positions are contributing to the risk that there may be forced selling of assets in order to meet the ongoing bleed of redemptions,” said Spegel.


The asset class’s fortunes have hit the rocks since a record-breaking US$484.2bn of bonds were issued in 2012.

Last year, total issuance was US$339bn - a 30% collapse in volumes from the peak. Asia, moreover, accounted for more than 50% of global issuance in 2015.

“I can definitely picture the market going back to how it used to be, where EM is seen as a much smaller part of a portfolio than today,” said a syndicate banker.

It is a view shared by the investor, though he believes a smaller market may not be a bad thing. “We could look back and say [we‘ve] washed out a lot of the noise,” he said.

Another investor said fears that EM will drift into the background are overdone.

“We see this as more of a cyclical trend than a secular one,” said the investor. “It’s grown a lot and was overbought, but now it’s an important part of an investment portfolio.” (Reporting by Michael Turner; editing by Sudip Roy and Matthew Davies)

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