Global Investing

Market cap of EM debt indices still rising

January 8, 2014

It wasn’t a good year for emerging market bonds, with all three main debt benchmarks posting negative returns for the first time since 2008. But the benchmark indices run by JPMorgan nevertheless saw a modest increase in market capitalisation, and assets of the funds that benchmark to these indices also rose.

JPMorgan says its index family — comprising EMBI Global dollar bond indices, the CEMBI group listing corporate debt and the GBI-EM index of local currency emerging bonds — ended 2013 with a combined market cap of $2.8 trillion, a 2 percent increase from end-2012. Take a look at the following graphic which shows the rise in the market cap since 2001:

Last year’s rise was clearly much slower than during previous years.  It was driven mainly by the boom in corporate bonds, which witnessed record $350 billion-plus issuance last year, taking the market cap of the CEMBI to $716 billion compared to $620 billion at the end of 2012, JPM said.

The EMBI Global indices of sovereign dollar bonds fared less well, with capitalisation rising just 1.2 percent to $586 billion. But even here, the growth was largely down to companies — quasi-sovereigns’ share of the index- rose to 27.6 percent, up from 23 percent of a year back.

Local debt fared worst, with market capitalisation actually declining 3.1 percent to $1.5 trillion, but that was largely because of a broad 6 percent-plus fall in emerging currencies versus the dollar.

Assets of funds benchmarked to the indices meanwhile grew to $597 billion, a rise of almost $40 billion. Surprisingly perhaps, despite the rather disheartening performance by emerging local debt and the outflows that many investment funds suffered last year, the AUM of these funds  grew by more than 11 percent over the year to $217 billion by end-2013.  But in percentage terms, the CEMBI-benchmarked funds were still the winners, with a 32 percent growth rate.  That was possibly down to the lower liquidity in corporate debt that inhibited outflows.

The indices are likely to keep growing– emerging debt issuance appears to have gotten off to a flying start and most banks reckon that 2014 bond sales will top $400 billion.

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