Emerging-Markets 2015 Debt Trading Lowest Since 2009, EMTA Says

  • Investors allocating less due to volatility, weak growth
  • Tightened regulations also reducing inventory and liquidity

Emerging-markets debt trading in 2015 fell to the lowest in six years as investors allocated less to the asset class due to rising volatility and a weak growth outlook, EMTA said.

Annual trading volume fell 20 percent to $4.73 trillion from $5.92 trillion in 2014, the lowest reported volume since 2009, according to a survey of 49 leading banks, asset management firms and hedge funds, conducted by the New York-based association for emerging-market debt trading and investment.

Developing-nation local currency bonds lost a record 15 percent last year, helping subdue trading volumes as China’s slowdown and a slump in commodity prices dimmed the outlook for emerging economies. Tightening financial regulations such as the Volker Rule, also prompted dealers and brokers to retreat from making markets, further trimming inventory and liquidity, Drausio Giacomelli, head of emerging-markets economics and strategy at Deutsche Bank AG, said in the report.

Risk-Off Environment

“Generally, this drop reflects the reduction in allocations to EM assets due to increased volatility, reduced growth prospects, and altogether disappointing performance,” Giacomelli said. "‘Risk-off’ in EM tends to weigh more heavily on local markets and less liquid corporate bonds, and this was the norm last year.”

Turnover in local-currency debt rose 7 percent in the fourth quarter of 2015 to $740 billion from a year earlier, accounting for 64 percent of the volume reported for the three-month period, according to EMTA. Dollar-denominated credit trading fell 22 percent in the same time period to $406 billion.

Overall, Mexican securities were the most frequently traded, accounting for $227 billion or 20 percent of the reported total, the survey showed. Indian debt came second at $135 billion, or 12 percent of the overall, followed by Brazil at $128 billion, or 11 percent.

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