Emerging Markets Fixed Income White Paper

The Whys and Hows of Investing in Emerging-Market Corporate Bonds

August 22, 2019

1 min read

What You Need to Know

Once a backwater of the bond world, emerging-market (EM) corporate debt has grown into a full-fledged asset class that investors can tap to diversify their EM allocation and boost their return potential.

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$2.3T

EM corporate debt outstanding

as of June 30, 2019

>600

Number of corporate bond issuers included

in the J.P. Morgan CEMBI Index

16.7%

The difference in 2015 annual returns for hard-currency EM corporates and local-currency EM sovereigns.

Author

Elizabeth Bakarich, CFA| Portfolio Manager—Emerging Market Corporate Debt

For years, when institutional investors talked about the composition of their EM bond portfolios, they were talking about currency. Some bonds would be denominated in US dollars or another “hard” currency, others in the local currency of the issuing country—Mexican pesos, Turkish lire, Chinese renminbi. But nearly all of them were government-issued sovereign bonds.

EM corporate bonds have historically been relegated to the periphery of fixed-income portfolios—if they’re represented at all. There was US$113 billion benchmarked to J.P. Morgan’s EM corporate indices as of June 30, about one-sixth of the amount tied to its hard- and local-currency sovereign indices.

This underallocation may have been understandable a decade ago, when the outstanding debt stock was lower and less diversified. It isn’t anymore. The total EM corporate debt stock doubled between 2012 and 2018 to US$2.3 trillion, which is about twice the amount of outstanding hard-currency EM sovereign debt. And the standard EM corporate benchmark, the J.P. Morgan Corporate Emerging Markets Bond Index (CEMBI), encompasses bonds from more than 600 corporate issuers in 52 different countries (Display).

A Bigger Pond to Fish In: EM Debt’s Growing Opportunity Set

Total Debt Stock (USD Trillions)

A Bigger Pond to Fish In: EM Debt’s Growing Opportunity Set

As of June 30, 2019
For informational purposes only. There can be no assurance that any investment objectives will be achieved.
Corporate Debt: J.P. Morgan CEMBI Broad Diversified; Local-Currency Sovereign: J.P. Morgan GBI-EM Global Diversified; Hard-Currency Sovereign: J.P. Morgan EMBI
Global Diversified
Source: J.P. Morgan Markets and AllianceBernstein (AB)

Widening the Opportunity Set

An allocation to corporate debt provides diversification through exposure to more countries and to different parts of the credit cycle. It also gives investors access to a wider range of issuers in different sectors, often with a spread pickup over EM sovereign debt.

How investors add EM corporates to an existing fixed-income allocation will depend to some extent on their individual needs and comfort level.

EM corporate bonds aren’t entirely without risk, of course. While corporate governance, transparency and protections for creditors and shareholders have improved over the last decade, they still lag standards in developed economies. This is why it’s so important to choose the right manager for your EMD allocation.

Past performance, historical and current analyses, and expectations do not guarantee future results. There can be no assurance that any investment objectives will be achieved. The information contained here reflects the views of AllianceBernstein L.P. or its affiliates and sources it believes are reliable as of the date of this publication. AllianceBernstein L.P. makes no representations or warranties concerning the accuracy of any data. There is no guarantee that any projection, forecast or opinion in this material will be realized. Past performance does not guarantee future results. The views expressed here may change at any time after the date of this publication. This document is for informational purposes only and does not constitute investment advice. AllianceBernstein L.P. does not provide tax, legal or accounting advice. It does not take an investor’s personal investment objectives or financial situation into account; investors should discuss their individual circumstances with appropriate professionals before making any decisions. This information should not be construed as sales or marketing material or an offer or solicitation for the purchase or sale of any financial instrument, product or service sponsored by AB or its affiliates.

The views expressed herein do not constitute research, investment advice, or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.

About the Author

Elizabeth Bakarich, CFA

Elizabeth Bakarich, CFA

Elizabeth Bakarich is a Senior Vice President and Portfolio Manager, focusing on emerging-market corporate debt. She is a member of the Credit, Emerging Market Corporate Debt and Emerging Market Debt portfolio-management teams. Bakarich became part of the Emerging Markets team in 2014, working as an associate portfolio manager on corporate and local-currency debt portfolios. Prior to that, she worked in the firm's London office on the Global and European Credit teams. Bakarich joined the firm in 2006 as an associate with the US Municipal Group and later became supervisor of that group. She holds a BS and MS in mathematics from the Stevens Institute of Technology. Bakarich is a CFA charterholder. Location: New York