Investors more cautious over emerging market debt outlook

Hong Kong

GLOBAL investors are turning more cautious over the outlook for emerging market sovereign bonds, faced with rich valuations and increasing supply from countries struggling with slowing growth.

Developing nations have rushed to borrow billions of dollars in cheap funds as the US Federal Reserve and other central banks launched aggressive bond buying programmes that have lowered long-term rates and pushed investors into riskier but high-yielding assets.

"The extent of the recent rally that has occurred across all emerging market asset classes is starting to look a little stretched in the short term," said Richard House, global head of emerging market debt at Standard Life Investments which manages US$79 billion in fixed income. "This is occurring at a time when sovereign issuance…