Emerging Market Bonds: One of the Best Asset Classes of the Last 10 Years
By Tony Daltorio and the Investment U Research Team
The old rules of the fixed income world are being torn up…
Gone are the days when investors were told to shun emerging market debt. It was too risky, they were told. Developed markets were the only safe place for them to park their cash.
But thanks to the crisis in Greece and Europe – and to the debt burdens weighing on many other markets, including the U.S., UK and Japan – emerging market debt has never been so popular. Their bond funds have already seen a significantly bigger inflow in the first four months of 2010 than in the entirety of 2005, the previous record year at $9.7 billion.
Even cautious institutions are craving emerging market debt these days. According to JPMorgan, U.S. pension funds will likely pour about $100 billion into such investments over the next five years.
Surprisingly, emerging market bonds represent a conservative asset class over the long term, offering a stellar risk/reward ration and excellent diversification benefits. Many of the fundamental forces behind this upcoming trend are already taking center stage…
Emerging Market Bonds' Early-Life Crisis
Emerging markets have definitely faced a number of trials and tribulations.
As the mid-1990s drew near, Mexico shook up Latin markets as its currency and bonds both crashed in what became known as the Tequila Crisis. A few years later, Asia took its turn of turmoil. Currencies, bonds and stocks throughout the area tumbled one after another, beginning with Thailand.
The negative ripple effect spread to
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