Key Investment Factors

The Emerging Markets, current as of 1996:

  • 45 Nations classified as Emerging Economies
  • Total Outstanding: $350 Billion
  • Population of about 2.6 Billion (1992), is in excess of 2/3 of world's total
  • GDP of $3.5 Trillion (1991)
  • Growth rate of 5% (1991)
  • Most economically diverse group
  • Fastest growing region
  • Economies and infrastructure substantially underdeveloped

How Emerging Markets Debt compares to other non-investment grade instruments:

  • Total return range of between -17% to +32%
  • Yield pickup due to risk premium (high yield spread to US Tsy)
  • Opportunity for capital gains: deeply discounted
  • Comparable to US high yield market
  • As portfolio diversification tool to achieve favorable returns relative to substantial risks

Asset Types

  • Brady Bond Primer and An Assortment of Brady Flavors
  • Collateralized bonds created as part of national debt restructuring
  • Sovereign Bank Loans
  • New restructuring issues - exchange bonds
  • Local market debt instruments
  • New issue capital markets instruments for sovereign, public sector and corporate borrowers

Asset Risk: High potential returns tempered by inherent risks

  • Evaluation of restructure history of defaulted sovereign loans
  • Continued heavy indebtedness of many emerging nations
  • Potential for political uncertainty
  • Imperfect fundamental data and research information
  • Non-standard and reduced disclosure requirements
  • Possible enforcement difficulties
  • Limited remedies in the event of default
  • Investors need to consider portfolio diversification and investment selectivity

Investment evaluation criteria

  • Credit fundamentals
  • Improving investment quality
  • Growth potential of reformed economies
  • Yield relative to B through BB credit quality
  • Increased market liquidity

Reasons for expecting sustained economic growth

  • Deregulation of key industries ( trasportation, Oil )
  • Privatization of key industries ( airline, telcom, banking)
  • Introduction of fiscal prudence
  • Removal of price subsidies
  • Reduction of trade barriers
  • Introduction of tight fiscal and monetary policies
  • Enhanced international competitiveness
  • Stabilization of exchange rates
  • Manageable inflation
  • Increased resources available to the private sector
  • Decreasing foreign debt burden
  • Reliable and viable investment alternatives
  • Expanding consumer base
  • Skilled and competitive labor force