Emerging Market Bonds May Provide Better Value Than Stocks

Bargain hunters eyeing the drop in emerging market equities may want to shift their focus to the segment’s unloved bonds instead.

Emerging market assets have certainly been unloved: So far this year, $10.9 billion has flowed out of emerging market bond funds and $24.6 billion has exited emerging market equity funds, according to data from Jefferies. Around $15 billion flowed out of emerging market stock funds last year, Reuters reported.

The segment has been selling off in fits and starts since the U.S. Federal Reserve said last May that it would soon begin tapering its asset purchases, spurring fund outflows amid expectations of tighter monetary policy.

But while emerging market equities are now trading at a 30 percent discount to developed market counterparts on a price-to-book basis, stocks aren’t really trading at value levels, Societe Generale said in a note, citing equity risk premiums, or the excess return an asset must pay over the “risk-free” rate to compensate investors for the additional risk.


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Mingze Wu

Mingze Wu

Currency Analyst at Market Pulse
Based in Singapore, Mingze Wu focuses on trading strategies and technical and fundamental analysis of major currency pairs. He has extensive trading experience across different asset classes and is well-versed in global market fundamentals. In addition to contributing articles to MarketPulseFX, Mingze centers on forex and macro-economic trends impacting the Asia Pacific region.
Mingze Wu