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Corporate Debt invests in debt instruments issued by public and private sector corporate issuers across a universe of 60-80 Emerging Markets countries.
Global financial markets are today channelling more capital into the private sector in Emerging Markets than into the public sector. This is a hugely positive development. Access to capital is helping to unleash the private sector’s long-suppressed growth potential, thereby driving the very convergence process, which lies at the heart of the strong performance of Emerging Economies since the end of the Cold War.
Investing in Corporate Debt is perhaps the purest way to gain exposure to this exciting story.
But what are you buying when you buy a Corporate bond?
First of all, you are buying better fundamentals.
Compared to their cousins in developed countries, Emerging Markets corporates tend to be more conservatively managed. They have greater pricing power, they tend to be more cash rich, and they run less leverage.They also have default rates which are materially lower and they operate in economies with much stronger growth, healthier fiscal balances, and stronger reserve positions.
You are also buying into a rapidly expanding market. The Emerging Markets Corporate bond universe is set to grow strongly in the years ahead. It is already USD 5.3trn, or 45% of total Emerging Markets fixed income, and it is set to overtake sovereign debt as the largest fixed income asset class later this decade.
The drivers of this growth are sound: Bank disintermediation, the rise of local pension funds, and significant under-exposure to Emerging Markets by institutional investors.
One of the most exciting prospects is the rise of the Local Currency Corporate bond market. This will eventually become the single largest sub-theme within Emerging Markets fixed income. Today it has yet to be given an index.
Ashmore currently offers this theme on a segregated account basis and via investment in commingled funds (Luxembourg SICAV, US mutual fund and private fund).