If 2012 for emerging markets could be summed up in a few words, they would probably be “the search for yield”.
That was a change from 2011, when the keynote was “the flight to safety”: market panic drove investors away from risky EM assets and into the safest possible developed market ones. But in 2012, as growth in developed economies continued to stagnate and real yields on some AAA sovereign debt turned negative, investors started looking further afield. With healthier public balance sheets and fast growing economies behind them, EM government bonds saw a surge of inflows.
JP Morgan’s benchmark EMBI index, which tracks yields on EM government bonds, fell below 5 per cent – down from over 12 per cent in 2008 – to reach record lows, while volumes of EM debt issuance grew by around 50 per cent to $350bn. Emerging market debt funds enjoyed a stellar year, with massive inflows and high returns.
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