EM Corporate Debt – Earning a Place at the Table

Jasper Sagoo -

Emerging Market (EM) corporates are as varied as the language, climate and cuisines of their home countries.

We outline why we believe investors should consider a structural allocation to EM corporate debt, while also shedding light on why an allocation to this dynamic asset class makes sense in the current market environment. We ultimately conclude that this growing, diverse and high-yielding asset class has earned its place at the global investment table.

Investors can gain exposure to the EM growth story through EM corporate debt. EM assets stand to benefit from a swing in the global economic pendulum from developed to emerging markets. Economic growth and middle class formation will create a new population of consumers for EM companies to sell their goods and services to.

EM corporate debt is a core component of the fixed income opportunity set. The sector has grown over 300% in the last decade and now represents over 16% of the global corporate market. This rapid growth reflects rising investor appetite and deepening capital markets. EM corporate debt provides investors with a high quality source of yield and offers relative value versus other fixed income sectors.

In case the world sneezes, EM resilience has increased. In recent years, EM sovereigns and EM corporates have taken necessary steps to build resilience. At the micro level we have observed credit-friendly trends such as conservative capital expenditure, moderate net debt growth and low leverage.

EM corporate debt can diversify a broader portfolio. Our analysis shows that there is scope for global fixed income investors to improve risk-adjusted returns and reduce exposure to interest rate movements by adding EM corporate debt to their investment allocation.

Jasper Sagoo – Executive Director, EMD Portfolio Manager – Goldman Sachs