Why emerging markets income should be handled with care

'Do not rush in with eyes wide shut'

clock • 4 min read

The search for yield has pushed investors out of the comfort zones of UK equity and fixed income to take on more 'risk' than normal for a meaningful return, including a rush to emerging markets, with inflows in January at the highest in 18 months.

Yield appears to be behind these inflows as a dividend culture is growing in equities and EM debt looks attractive relative to developed markets; indices are yielding 5%-6%, with an extra 1%-2% generated by local currency.  The weakening US dollar strengthens local currency debt and makes dollar denominated-debt easier to finance. Finance is much easier to acquire, and the cost of debt is more attractive.  Gallery: What will frontier markets look like in 2020? Brazil, Russia and South Africa are also all coming out of severe recessions, while India and Indonesia offer relative high...

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