How EM corporate bonds shield market volatility

EMERGING MARKET DEBT

Alain Defise, investment manager at Pictet Asset Management, argues emerging market corporate bonds offer a way to tap into the ‘dynamism' of the developing world, while shielding investors from the volatility associated with emerging currencies and stocks.

Financial markets can be a theatre of the absurd. How, for instance, did insurance group AIG manage to cling on to its investment grade rating right up until it was bailed out by the US government? Why, also, did Italian government bonds trade persistently at the slimmest of discounts to their German counterparts, in the face of the country’s fast-deteriorating public finances? And what plausible explanation could be given for attaching a valuation of well over 100 times future earnings to the Nasdaq index in 1999? Yet, for every glaring market anomaly, there are many instances whe...