Emerging market bonds offer attractive options

The S&P 500 market does not look bad as the unemployment rate is at a five-decade low, and almost 76 per cent of the companies at S&P delivered results above expectations. 

Inflation is low, crude prices are down, and the overall commodity price is declining. But the inverted yield curve has been linked to recession risks, which have been enhanced by the Federal Reserve's announcement to cut rates after last year's four-rate increase.

Global bond rates have been escalating, driving interest rates down. 10-year Treasury bond yield is at 2.26 per cent, which is almost a full percentage down since November 2018. 

Globally, the net cash flow into various funds increased to €304bn in Q1, which was €118bn in Q4 2018 - as per the European Fund and Asset Management Association (Efama) data. 

The data suggests the inflow in bonds increased globally during this time, where the global net assets in equity funds with bond funds constitute approximately 20%. 

The US and Europe hold 47% and 32% of global shares, respectively, and 3 to 4% of global shares each are held by investors from Australia, China, Brazil, and Japan. In contrast, investors from India, South Korea, and South Africa hold less than 1% of global shares each. 

Emerging Market Bond Opportunity 

The emerging market bonds are considered one of the best in the current market, supported by Asia's strong economic fundamentals. China does not trade most of the high-yield credits in the global markets, but some recent corrections have created certain entry points in the market.

 Many global investors are seeking opportunities in Indian and Indonesian corporate bonds, which can provide higher relative value that is further supported by the lower political risks in these countries.  

The portfolio managers are expected to follow the Fed to invest in Asian bonds where the central banks of India, Indonesia, and the Philippines had hiked rates in the last 18 months when the Fed was tightening.  

• The 10-year yield of the rupiah declined to 7.39 per cent but is still higher.

• The local policies in the countries support the inflow into the EM debts. 

• Rupee-based bonds offer an attractive option as it is not directly involved in the trade war, although the interest rate dropped to 6.73% in the last week and is at its lowest since 2017. 

• Mexican and Chinese credit risks are creating fears.

• The investors are worried about sudden issues created by situations like the Iran –US clash risk. 

• Analysts widely predict and study financial markets, but sometimes, the trends follow the unexpected route.

• Analysts state the markets are reconciling, where the firms are no longer investing in expanding. 

Moreover, the trade tariffs have changed how products are priced in the global markets, and the buyers are adjusting to the new changes. 

Experts state it may be very difficult to handle another economic crisis in the current decade, which many financial experts have foreseen as the growth has declined in the major economies and there are risks linked to the newer types of debts; besides, most illiquid financials are susceptible to flash crashes.