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GRAPH OF THE MONTH

Investable Emerging Markets Local Currency Debt
far outstrips Foreign Currency Debt

EM Debt – Market structure

Source: DPAM, Bloomberg

MENA= Middle East and North Africa, SSA= Sub-Saharian Africa

Investment opportunities in developing and emerging countries have increased in recent years.

Firstly, the Emerging Markets debt structure has changed quiet dramatically. At the end of 2018, more or less 7/8th of the debt outstanding by Emerging Countries was in Local Currency up from 1/5th less than a decade ago. Countries that issue the bulk of the debt in Local Currency, are less vulnerable for a currency crisis. A good example is the Asia Currency crises in 1997, which showed that a high degree of foreign currency lending can have a serious impact. Nowadays, most Asian countries have the bulk of the debt in Local currency, creating greater stability in the region.

Secondly, more and more Emerging Countries are well aware of the impact of good debt management. The fact that bonds can be settled via international clearing houses, that there is a well organized secondary market and that issue sizes are sufficient, can have a huge impact on the debt servicing cost. More and more countries issue “global bonds” that can be cleared in an easy way and be settled in USD, despite a denomination in local currency.