Halister News

(Bloomberg) -- Emerging market debts offer more than 2 percentage points in real yield advantage over their G-10 contemporaries, a hefty sum that may ensure continued inflows into their markets, thanks to unprecedented monetary stimulus in developed economies.

• Emerging markets yield 240 bps more than G-10 after inflation at end-July, most on the time series that began in Jan. 2012, according to data compiled by Bloomberg
• The world’s 10 biggest emerging markets command an avg 10-yr real yield of 2.07% compared with G-10 economies which ‘yield’ -0.34%
• Slow Fed rate hikes and continued accommodative stance among other major central banks will probably spur investors to pour more funds into EMs, says Takahide Irimura, economist at Mitsubishi UFJ Kokusai Asset Management
  • “Countries like Indonesia and Brazil that saw sell-offs last year are relatively cheap and their fundamentals are improving, attracting fund inflows,” Tokyo-based Irimura says
  • Some investors may prefer higher yields even as they come with the occasional volatility
• Global funds have bought $7.8b of Indonesia’s govt bonds so far this year, already surpassing last year’s total, as July inflation is slowest since 2010 when the time series began
  • They’ve also bought $10b in South Korean debt and $9.5b in Thai bonds
• In Brazil where policy rate is set at 14.25%, overseas investors’ debt purchases reached $16.0b in 2016, on course for first annual net inflows since 2005
  • Brazilian real’s 3-mo. implied volatility is 17%, higher than any G-10 currencies
• NOTE: EMs include China, India, Brazil, South Korea, Russia, Mexico, Indonesia, Turkey, Poland and Thailand