Unprecedented flows into emerging-market bonds signal renewed confidence there’s money to be made lending to the most politically volatile countries.
The CHART OF THE DAY shows a record $487 million poured into the world’s largest exchange-traded fund focused on notes from developing nations last week. Debt from Russia, Turkey, Hungary and Venezuela make up 19 percent of the $4.2 billion iShares ETF, according to data compiled by Bloomberg.
After outflows of $1.7 billion over the past year, investors are brushing aside sanctions imposed against Russia after its takeover of Crimea, accusations of graft against Turkish Prime Minister Recep Tayyip Erdogan’s administration and anti-government protests in Venezuela. Hungary Prime Minister Viktor Orban, whose centralization of power has triggered confrontations with the European Union over the past four years, won another term in yesterday’s elections, partial results show.
“Investors know Russia’s ability and willingness to pay is extremely strong,” said Michael Roche, an emerging-market strategist at Seaport Global Holdings LLC in New York. “There’s been another round of policy initiatives in Venezuela that’s bringing off near-term concern that government is facing a declining payment capacity. Within Turkey, the hold on political power by Erdogan’s party is very strong.”
Twenty-nine percent of money flowing into U.S.-based emerging-market ETFs last week went into fixed-income funds, compared with an average 10 percent in the previous five years, data compiled by Bloomberg show.