Feature – Emerging market debt


DEBT: AN EMERGING STORY


Could the sell-off linked to uncertainty over Coronavirus lure more pension schemes to developing nation debt? Catherine Lafferty reports.


Of all the asset classes into which investors sink their money, the emerging markets possess the most romance. They tell sto- ries of adventure and of goldrush fortunes being made during never-to-be-seen again windows of opportunity. All this building for a golden future is powered by debt. In our world of low interest rates and yields, the case for emerging market debt is being pushed hard to investors in the developed world. But it is not clear if that message is getting through. Pension schemes, particularly those in the UK, tend to focus the fixed income slices of their portfolios on developed market investment-grade debt, according to Uday Patnaik, head of


32 | portfolio institutional April 2020 | issue 92


emerging market debt at Legal & General Investment Management. Patnaik says that he has been trying to promote the virtues of developing world debt to his institutional clients, making it clear that pension schemes which do not look beyond bonds is- sued in North America and Western Europe are missing out on some great investment action. He points to the higher yields of paper issued by emerging market sovereigns and corporates. Sovereign debt spreads is- sued in the developing world increased by close to 70 basis points to 373 by the end of February, according to the JPMorgan


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