Are Emerging-Markets Bonds Overheating? (NYSEARCA:ELD, NYSEARCA:PCY)
Flows have been high into developing-markets debt ETFs as investors seek more yield, but several funds are apt to manage the credit risks. This is not a new story, but the basic premise is the idea that the emerging world has very low debt/GDP ratios, their economies have very low debt levels in relation to their GDP, and their GDP growth rates are much higher than developed world. So, if you are looking at who is the better credit risk, a country with low debts and high growth rates or a country like the U.S. or some of the countries in Europe with very high debt rates and very low GDP growth. Well, it’s obvious you will then chose emerging world. So that’s really the main story.
Now, the reason that there have still been higher yields and you still can get higher yields in the emerging world versus say very low yields in the U.S. and Europe, is that there is still risk of default because some of these governments are not as stable as the developed world, so that risk is still out there. But in general they are very good credit risks right now.
You can see the full Morningstar interview below:
Related: WisdomTree Trust (NYSEARCA:ELD), PowerShares Emerging Markets Sovere (NYSEARCA:PCY)