Evolution of Emerging Markets Debt Investing

Abstract

1. Chia Liang Lian 1. is the head of Emerging Markets Debt at Western Asset Management in Pasadena, CA. (chialiang.lian{at}westernasset.com) As an asset class, emerging market (EM) debt has undergone a structural evolution to cover more than 70 countries in the past 30 years. One unintended consequence of this asset class’s multifarious attribute is that it is prone to being misunderstood. In this article, the author postulates that for the strategic investor, the nonmonolithic attribute of EMs represents a compelling feature rather than an inherent flaw. The investment proposition for the asset class has witnessed dynamic shifts at different points of the market cycle. During this period, the author suggests that there are three discrete stages of development in the manner by which investors interact with EMs: market access in the 1990s, market boom in the postmillennium decade, and market innovation presently. The author expects a future trend of increased customization to align investment exposures with intended objectives and a secular shift away from an off-the-shelf, index-based approach.