Skip to main content

May 2021 / VIDEO

The Active Opportunity in EM Corporate Bonds

EM corporates are one of the last truly inefficient asset classes - good news for active managers

 

There are a variety of reasons why active management has durably provided value in emerging corporates. I wanted to discuss four of those. 

The first is that there are fewer dedicated investors in emerging corporate credit. We think this will gradually change over time, as seen in the rising sponsorship in recent years. But the inverse of this is good news. It offers opportunity for active management to come in and generate durable excess return, because it is a less competed credit category.

The second has to do with the regional composition and the diversity of that with respect to emerging market debt.  The emerging equity category has become much more heavily weighted towards Asia in the last ten years, whereas the emerging bond category still has meaningful opportunities in Latin America, Emerging Europe, along with the Middle East and Africa. we think this is reflected in the number of countries available for us to invest in, with over 70 countries in the bond market versus fewer than 30 in the equity market. 

The third topic would be the wide dispersion of valuations. The line is showing you the average yield for new issues on single B credit in emerging market corporates, while the marks are showing you the yield for individual bonds that  were issued into the market. It shows you that there's an inefficiency in the category where rating agencies have often struggled to appropriately assess the risk of the asset class and i think that really just underscores the value of doing bottom-up research.

Unoubtedly, this is a research-intensive asset class. This chart is showing you the number of new issuers for EM corporates in both investment grade and high yield. Very steadily, we have a lot of supply from new companies. This can be daunting for the industry, because the underwriting period for our market can be as short as 2-3 days. For T. Rowe Price, we feel we have a real competitive advantage here, and it's leveraging the collaboration across the platform, both for the countries, which we already know from our sovereign research, but also the companies. They may be a new bond issuer, but we may have 4 decades of contacts and experience for that company or that industry in our equity business.

Our team is available to discuss any additional questions that you or your clients may have about emerging market corporate debt. 

 

 

IMPORTANT INFORMATION

This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.  

It is not intended for distribution to retail investors in any jurisdiction.

Previous Article

May 2021 / VIDEO

Global Aggregate Bond: The Inside Story
Next Article

May 2021 / POLICY INSIGHTS

Understanding T. Rowe Price’s Strategic Investing Approach
202102-1517256

April 2021 / INVESTMENT INSIGHTS

The Resilience of EM Corporates

The Resilience of EM Corporates

The Resilience of EM Corporates

EM corporate bonds have had smaller losses and less volatility at times of market...

By Siby Thomas

Siby Thomas Portfolio Manager

April 2021 / INVESTMENT INSIGHTS

History, stability, cognitive diversity

History, stability, cognitive diversity

History, stability, cognitive diversity

In brief: three things that differentiate the Emerging Markets Corporate Bond Strategy

By Samy Muaddi

Samy Muaddi Portfolio Manager

You are now leaving the T. Rowe Price website

T. Rowe Price is not responsible for the content of third party websites, including any performance data contained within them. Past performance cannot guarantee future results.