October 20th, 2010
07:52 AM GMT
(CNN) – Emerging market bonds are telling an interesting story about investing right now.
According to data from ING, EM bonds are in demand. David Spegel, ING’s global head of Emerging Markets Strategy says, “Investors are increasing their risk exposure, first by moving into EM corporate bonds from EM sovereigns … and by buying bonds that are rated further down the credit ratings spectrum.”
The best-performing emerging market bonds are in Belize, up 67 percent; Ukraine, up 32 percent; Argentina, up 24 percent; Uruguay up 22 percent; and Iraq, up 19 percent.
That is not bad compared with the year to date return of the S & P, which is about 4.25 percent.
Emerging market equities, according to ING, have returned 11.94 percent year to date. EM bonds have outperformed EM equities by more than 3 percentage points.
Even the worst performing year-to-date emerging market bonds don't look too bad compared with developed markets: Ecuador is up 2 percent, Serbia is up 5 percent, and China is up 7 percent.
So, what does it mean? Investors appear to be banking on growth in developing nations like the BRIC countries - Brazil, Russia, India and China - we follow closely on World Business today.
That’s because developing nations don't have the problems that developed markets have, such as heavy debt. Many BRIC nations export commodities and the price of commodities is on the rise. Developing nations also have populations that are young and growing.
In addition, the International Monetary Fund projects developing nations will grow 6.4 percent next year, while developed economies will expand just 2.2 percent.
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