Chapter 31. Emerging Markets Debt

MARIA MEDNIKOV LOUCKS, CFA

Senior Managing Director, Black River Asset Management

Abstract: In the broadest sense, the group of emerging countries includes all nations not considered industrialized or already "developed." Since the latter group has only two dozen or so members, the emerging country universe encompasses most of the world's population and geography. However, because many emerging market countries have no investable debt securities, only a subset of these countries comprises the emerging markets debt universe. Hence, the more precise terminology is emerging market, rather than emerging country. While convention and market terminology lump all of these countries into one market, there are profound, fundamental differences among them. Many Latin American countries have a history of poor macroeconomic management and suffer from deep social inequality, but their recent economic performances have largely improved. Eastern Europe is recovering from decades of central planning, but some countries have prewar histories of success with capitalism. Opening these markets up to the rest of the world has the potential of producing large growth rates. Africa is generally income poor but commodity rich. Finally, a number of southeastern Asian countries have very high savings rates, resulting in exportation rather than importation of capital. As more emerging countries develop sovereign bond markets, inter-regional and intercountry differences will ...

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