Over the past twenty years, emerging market countries have addressed many of the vulnerabilities that have deterred foreign investors.
Pramol Dhawan, Head of Emerging Markets Portfolio Management at PIMCO, explains that many countries have built up their US dollar assets and further developed local bond markets. They have also localised their current accounts and allowed for free movement of money.
He says: "All these factors have created a more investable climate for foreign investors. Whether they choose to or not, it's a lot easier for people to invest with confidence now than it was 20 years ago."
As a result of the changing landscape, investing has become more nuanced. While in previous cycles, investors would allocate to emerging markets when EM began outperforming developed markets, today they look more closely at valuations.
Some emerging market assets can provide the compensation you would typically associate with riskier credits - despite the risk of default remaining small - and this risk premium can be highly attractive for emerging market investors.
Read the full article here.