THE emerging markets offer a series of large and diversified opportunities, from the consolidated capital markets such as the Brazil and the great capital of Saudi Arabiato the border markets of Ghana and Ukraine. Underlines it Katherine Renfrew, Head of Emerging Markets Corporates and Quasi-Svereigns by Nuveen Explaining that one of the best examples of the variety of emerging debt markets is represented by the dispersion of returns. The expert is based on the data of the last ten solar years specifying that every year presents a marked difference in performance between the countries with the best and the worst performance. In 2024, for example, iThe country with the best performance has obtained a 118 performance%, while the one with the worst performance has undergone a drop of almost 6% – a scissor of 124 percentage points.
Why focus on the EM corporate bonds
I raverage endings of the first five and the last five show a similar trend, with a Range for 2024 of over 80 percentage points. In addition, the data show that the great differences in returns between countries are a constant problem every year in the debt of emerging markets. To better position the exposure to a country of an emerging debt portfolio, one is needed Complete understanding of the country risk.
Factors such as economic growth, the dynamics of inflation, land exchange reasons and sovereign debt levels influence the risk profile and the performance potential of a country. Consequently, the sovereign risk factors are generally the Main debt performance driversor, especially on longer time horizons.
Expand the opportunity for opportunities
The possibility of expressing one’s belief towards a country through Sovereign companies and securities offers further levers investors To generate strong yields adjusted for the risk compared to a portfolio of only sovereign securities (which limits the intra-paese lever largely to the positioning of the curve). In addition, the expansion of the set of opportunities to corporate bonds offers greater possibilities of diversification and Management of duration and quality risks. The corporate broadcasters that are overlooking the market are issuing debt securities thus expanding the set of opportunities and offering diversification and performance. This trend is expected to continue: in 2025, companies EM will emit 383 billion dollars, almost double the sovereign emissions in strong currency.
THE corporate bonds they can play a significant role in managing the risk of reduction and active risk of a strong currency wallet, allowing investors to capture Alfa more efficiently.
The Chile case
Chile has one of the most solid credit fundamentals Latin America and boasts one of the most stable rating among the emerging markets, with a A2 Rating profile, A and A- Rinspection by Moody’s, S&P and Fitch. Thanks to the fundamental solids of Chile and the improvement on the front of institutional developments, its corporate and almost-sovered market has flourished, offering a robust and diversified set of broadcasters in a series of sectors and rating profiles. Looking beyond the sovereign debt, investors can exploit the stability of the Chilean macroeconomic context, but also to be adequately compensated with interestThe opportunities for performance and spread.
And Türkiye
Also the Türkiye offers a large Gamma of corporate emissions CHe represent further levers for investors, depending on the economic context. Exporters, for example, can potentially benefit from a depreciation of the currency thanks to the reduction of the costs of the production factors in their country and the increase in the prices of the exported products (if adjusted for the national currency). Many Turkish private companies and banks have managed to successfully overcome the past cycles of economic turbulence, and this should continue to provide trust of investors in case of change in political positions. There possibility of investing in this type of issuers is an important lever to manage the exposure to the country and the risk profile of the wallet.
THE correlation data support the thesis CThe addition of corporate bonds does not necessarily introduce a greater active risk, measured by tracking error.
A further consideration is the risk of concentration. A portfolio that can invest both in corporate bonds and in sovereign qualifications should be able to minimize the risks compared to sovereign and corporate portfolios managed separately. For wallets focused on sovereign securities, the decisions of selection of securities generally consist of positioning the curve and, in the best case, in a handful of almost sovereign titles that can offer a modest spread compared to the sovereign counterpart. The most important lever for the determination of returns is the relative weighting of the countries with respect to the benchmark, i.e. allocation by country.
Although it is a precious lever, an excessive emphasis on ponderations pEr Country can lead to substantial periods of submarine even if only some of these active positions are bad, in particular among the credits with lower rating, where the risk of default increases. Examples of this type are the wallets that hypothesized a high recovery for the default of the Venezuelan debt in 2018 before the application of the penalties, upright wallets on Argentina before the defeat in the primary of the President Macri in 2019 and wallets that have underestimated the scope of the Russian evasion of Ukraine At the beginning of 2022 and the rapid and coordinated response of the West to isolate Russia from global markets. Those wallets have undergone significant discounts that may take many quarters or even years to be recovered, concludes the expert.
