Booming emerging corporate debt vies with U.S. junk

Wed Oct 10, 2012 9:07am EDT
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By Sujata Rao and Carolyn Cohn

LONDON (Reuters) - New funds targeting debt issued by emerging market companies have helped push outstanding issuance past $1 trillion as investors chase high returns while sidestepping problems in developed economies.

Total volumes of debt issued by emerging companies are up tenfold since 2000 and the size of the market now rivals that for U.S. high-yield bonds. Investors are attracted by companies' strong balance sheets and rising demand for consumer goods and financial services in most emerging economies.

Emerging corporate debt has also milked a general rush from ultra-low-yielding developed markets, with new funds springing up to service demand.

Of 87 emerging market bond funds launched in the past nine months, 33 are dedicated corporate debt funds, according to Lipper, a Thomson Reuters company. Another 17 have said they will invest in both corporate and sovereign instruments.

Back in 2005, Lipper tracked just 10 corporate bond funds.

Full data is not yet available for this new cohort of funds, but preliminary numbers show that more than $1.5 billion flowed into these vehicles during the year to end-September.

"The market is visibly moving increasingly towards a corporate model," said David Spegel, global head of emerging markets strategy at ING. "More corporate-only managed mutual funds are inevitable."

Emerging sovereigns issued $72 billion in bonds in the first nine months of 2012, and look unlikely to approach 2009's record issuance of almost $100 billion, Spegel says. Corporate debt sales came to $227 billion in the same period, however, easily beating the $204 billion record set in 2009.   Continued...