“Now these countries have developed to the point where they have their own pension plans,” says Luz Padilla, senior portfolio manager of the emerging markets fixed income strategy at DoubleLine Capital in Los Angeles. And they are comfortable investing in their neighbors who they know relatively well, she adds. That investor comfort zone has now stretched to include just about anyone who is investing in fixed income.
“People that have mandates to invest in sovereign debt no longer want to invest in Spain and Italy,” according to Padilla. “We are seeing some of that money find its way into our asset class.”
In addition to pension plans, sovereign wealth funds are getting in on the action, Padilla says. These inflows combine with new investments from institutional investors in the developed world, including some surprising newcomers like managers of U.S. high yield debt funds who are determined to get yield wherever they can find it even if it means going abroad, according to Padilla.
All the new entrants are continuing to bulk of the total amount of assets in emerging market debt. At $68 billion last year, that number already has hit $80 billion this year, Padilla says.
Brazil, Indonesia, Mexico, the Philippines, Russia and Turkey are among the countries she invests in. The asset class also contains powerful economies like those of Singapore, South Korea and Quatar, she says.
The resolve in emerging markets to continue along their current growth trajectory is powerful, Padilla believes. This resolve has given rise to better policies and policymakers in many of these countries, she says.
“This is a whole group of countries that have brought a lot of people out of poverty and into the middle class,” Padilla says. “They don’t want to go back. A lot of these countries believe that the only way forward is to grow.”