Invesco starts new emerging-market debt ETFs despite turbulence

[NEW YORK] Emerging markets (EM) have taken a beating this year, but that isn't stopping exchange-traded fund (ETF) issuers from piling into debt issued by developing nations.

Invesco started four new emerging-market debt ETFs that hold corporate bonds maturing between 2021 and 2024. Although the Atlanta-based asset manager's newest BulletShares ETFs come as developing economies are struggling, there's still plenty of demand for the bonds, said Jason Bloom, director of global macro ETF strategy at Invesco.

"A lot of the volatility in emerging markets has centered around fears over trade disputes," he said in an interview. "But earnings so far haven't suffered, you haven't seen a significant movement in credit ratings in the debt market and our institutional investors have found emerging-market debt to be very attractive."

Emerging-market dollar debt joined the selloff in riskier assets this year as investors were concerned about rising interest rates in the US and escalating trade tensions with China. That sent the average spread on emerging-market sovereign bonds to an almost two-year high in September. The hard correction eased last month as traders began to feel that prices had fallen enough to reflect the risks, encouraging some developing countries to try new debt issuances.

"It looks like there still is appetite for EM debt," said Mohit Bajaj, director of exchange-traded funds at WallachBeth Capital. "EM has sold off pretty hard and people still want yield."

While the worst for emerging markets may not have passed yet, investors will likely reallocate from equities into debt because stocks have reason to slide further, including poor manufacturing data from China and concerns about Italy's budget, Mr Bajaj said.

"If you look at yields on emerging-market debt compared with the US with the same credit ratings, you're getting an attractive pickup," Mr Bloom said.

BLOOMBERG