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To many investors, Emerging Markets Local Currency government debt is the new benchmark asset class in Emerging Markets Fixed Income. Local Currency government debt consists of sovereign and quasi-sovereign government bonds issued in each country’s own currency. It is the main source of funding for Emerging Markets governments.
The asset class has grown strongly on the back of the establishment of pension funds across Emerging Markets over the past decade. It is now a USD5.7trn universe most commonly benchmarked against the JP Morgan GBI Index which includes 16 markets and 174 securities (of which nearly 80% are rated investment grade).
80% of Local Currency bonds are owned by local institutional investors, a very stable investor base. Foreign holders are increasingly central banks within Emerging Markets diversifying away from bonds issued by heavily indebted developed countries.
Local currency debt gives you exposure to both rates and currencies across Asia, Latin America, Eastern Europe, and increasingly frontier markets too. Yield curves are anchored by central bank monetary policy, while the long end trades on the broader macroeconomic developments within each country.
Liquidity in Emerging Markets FX is now such that rates and currency can be traded independently.
Ashmore currently offers this theme on a segregated account basis and via investment in commingled funds (Luxembourg SICAV, US mutual fund and private fund).