The Case for Emerging Market Debt

The economic outlook for your home country might be quite different from one halfway across the globe—or even right next door

Franklin Templeton Investments 30 July, 2012 | 1:05PM
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This article is part of Morningstar's "Perspectives" series, which is a series of articles written by third-party contributors.

Many investors have an innate “home country” bias, giving them blinders when it comes to opportunities beyond their own nation’s borders. But the economic outlook for your home country might be quite different from one halfway across the globe—or even right next door. Emerging markets may be viewed as a world away to investors in developed markets, but they can make a potentially compelling investment story for those seeking diversification. William Ledward, the London-based senior vice president and portfolio manager at Franklin Templeton’s Fixed Income Group, makes the case as he sees it for emerging market debt.

Opportunities in Emerging Market Debt
Leading benchmarks of emerging market debt have held up reasonably well despite a rise in risk aversion among investors. This is not surprising to Ledward, when considering the relatively strong economic position of many emerging market countries and the significant yield premium that many emerging market bonds currently offer over their developed-country counterparts. In terms of economic growth, emerging markets in general have outpaced developed markets since 2000. (For example, according to the CIA World FactBook, in 2011 US GDP was below 2% vs. 13.5% in Ghana and 9.2% in China.) Emerging markets have a relatively healthy fiscal position too, with generally lower debt-to-GDP ratios compared to most developed economies. Here’s why Ledward thinks emerging market debt is likely to score more attention from investors.

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Franklin Templeton Investments  is one of the world's largest asset management groups, offering UK investors a range of over 80 funds across different market sectors.