An interesting piece from NYTIMES notes –
The article highlights the risk posed by the expanded
supply of dollar-denominated bonds issued by emerging market (EM) corporations. The increased risk exposure of US bond mutual funds that purchased those high yielding bonds EM bonds is of particular concern:
“What worries many
regulators and economists is how much mutual fund money is now tied up in these
hard-to-sell bonds — an amount that far exceeds the exposure investors had to
these markets in earlier emerging-market crises.”
What is not
mentioned in the article and is worth noting – US Federal Reserve's policies are to blame for recent development. The Federal Reserve’s QE program drove yields
way down for domestic bonds - both government and corporate yields reached unprecedented lows. The consequent search for high-yielding
investment opportunities by US investors led them in search of riskier assets abroad. Given the enormous appetite for higher yielding EM bonds, it was only natural for corporations and governments in those regions to engage in large scale borrowing.
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Contrarian Investment Bets
When large scale investors head for the door, it might be
a good time to buy for long-term investors:
http://www.cnbc.com/2015/08/21/golden-opportunity-nearing-for-emerging-market-investors.html