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Switch to EM corporates from US corporates
The Emerging View
18 February 2016
Emerging Markets (EM) high yield (HY) corporates are safer than US HY corporates. They have lower default rates, are less sensitive to exchange rate movements and 80% of EM energy corporate AUM has a de facto sovereign backstop. The cyclical backdrop is improving in EM, while it is deteriorating in the US. EM corporates continues to have much better credit metrics for similar ratings, including much lower net leverage. FX mismatch fears are overdone and China concerns are rapidly receding on the back of sound management by the government. In conclusion, EM corporates offer a superior value proposition: far better quality for roughly the same yield.