By Carolyn Cohn
LONDON, Sept 5 (Reuters) – International investors who have
long complained of limited choice in emerging market assets are
now finding that local currency debt markets from Nigeria to
China are becoming more accessible.
The local debt of South Africa and Nigeria is expected next
month to enter indices tracked by global and emerging market
debt investors, making it available to a wider pool of buyers,
while Russia and China are opening up their local debt markets
to foreign investors.
Foreign holdings of local government bonds have nearly
tripled in Mexico and nearly doubled in South Africa since 2007,
according to JP Morgan, and these index and regulatory changes
are likely to increase foreign holdings further.
Core debt markets in the euro zone, United States and Japan
are offering tiny or even negative yields, helping emerging
market bond funds to post net inflows of $30 billion this year,
according to Boston-based fund tracker EPFR.
South Africa will join Citi’s World Government Bond Index,
benchmarked by $2 trillion in international funds, in October,
when Nigeria is expected to join JP Morgan’s local emerging
GBI-EM series, benchmarked by around $170 billion of assets.
“There is clear demand to own these assets, for
diversification and for the potential to pick up higher yields,”
said Luis Costa, emerging markets strategist at Citi.
“Nigerian T-bills trade at 14 percent, that’s a fantastic
pick-up in rates over the core.”
Citi estimates up to $7.5 billion will flow to South
Africa’s bond market over the next couple of years due to its
inclusion in the WGBI index, whose 23 existing countries include
emerging markets Mexico, Malaysia and Poland.
Continued…
