Emerging Markets Corporate Debt includes dollar-denominated bonds issued by public and private sector corporations in more than 60 countries. Unlike the External Debt market, which relies on a number of financial metrics for inclusion in the investible universe, the Corporate Debt universe is determined purely by geography. In addition to the dollar-denominated bond universe, there is a much larger local currency corporate debt universe that remains targeted at a domestic investor base. Together, the external and local currency corporate debt markets have been the main drivers of growth in the Emerging Markets debt universe, with a total outstanding amount in excess of USD 14 trillion.
While Ashmore has been investing in this asset class on a dedicated basis since 2007, corporate debt was included in other Ashmore debt strategies for several years prior to that date. The JP Morgan CEMBI family of indices was launched in 2007. The average credit quality of the index is investment grade at the BBB- level. The JP Morgan CEMBI Broad Diversified Index, which currently includes 59 countries, 811 issuers and more than 2,070 securities, is the most widely-used index, and is currently weighted 55.1% investment grade and 44.9% high yield. The largest country in the index is China, and Asia as a whole is the largest geographical region represented at 40.4%, followed by the CEEMEA region at 35%.
The corporate debt sector’s growth reflects a trend towards increased capital flows to finance growth in the private sector, when compared to the public sector. Global banks have curtailed their exposure to Emerging Markets, and public markets have increasingly replaced them as the primary source of funding for corporations, a process called disintermediation. This shift in funding sources is a positive development as public markets generally provide a more efficient mechanism for allocation of capital, rewarding good companies with less expensive capital. Better and more efficient access to capital assists in unleashing the private sector’s growth potential, extending the convergence process that has driven the performance of emerging economies since the end of the Cold War. Economic fundamentals are generally stronger for Emerging Markets companies compared to their Developed Markets peers; they tend to be more conservatively managed, with greater pricing power, higher cash balances and lower leverage. As a result, corporate default rates for Emerging Markets companies remain lower than in Developed Markets.
Ashmore currently offers Corporate Debt investments as segregated accounts or via commingled funds. In addition to broad market corporate strategies, Ashmore also manages stand-alone investment grade and non-investment grade Corporate Debt strategies.