Are Investors Ignoring Growing Warning Signs for Emerging Market Debt? (RBA)

The latest Insights newsletter from Richard Bernstein Advisors LLC argues that investors seem to be ignoring the following growing warning signs for emerging market debt:

  1. Emerging markets’ high rates of money growth
  2. Rising inflation
  3. Increasing political instability
  4. Currency instability
The RBA article goes on to note that emerging markets have had (for the last several years) the highest rates of money growth and the highest rates of inflation in the world. In fact, many of the major emerging markets now have inflation rates between 5% and 10%.
In addition, RBA explained why weakening emerging market currencies are not favorable for emerging market debt investing while the “coup count” is up to three (Egypt, Ukraine and Thailand), adding:
The high rates of inflation in some emerging markets have existed for so long that the standard of living is decreasing. The spreading civil unrest is a symptom of those falling standards of living. Yet, investors remain enamored with the emerging market consumer investment theme, and continue to ignore the deteriorating standard of living in a growing number of emerging market economies.
The RBA article concluded by saying they continue to prefer high yield municipal bonds and have sizeable positions in their portfolios.
To read the whole article, EM debt seems risky, go to the website of Richard Bernstein Advisors LLC.

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