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Fund Times

Fund Times: Developments in the Emerging-Markets Arena

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Emerging-market country debt has seen significant changes in recent years, as PIMCO executive vice president Curtis Mewbourne explained in his recent Emerging Markets Watch column. For starters, natural-resource-rich emerging-markets countries have greatly benefited from record-high commodities price levels in recent years, which have resulted in both improved sovereign balance sheets and increased debt reduction in the sovereign-bond sector. Debt reduction in countries such as Brazil, Columbia, and Venezuela, for instance, has amounted to more than $30 billion overall this year, according to Mewbourne. This, when coupled with lower levels of sovereign-debt issuance, improvements in governmental balance sheets, and heightened credit-quality ratings, has highlighted the significant changes going on in this market.

As this market matures, he argued, investment opportunities will "fall mainly in two areas, namely corporate and local market investments." In fact, the growing corporate emerging-markets sector, according to Mewbourne, eclipsed sovereign-bond issuance for the first time ever in 2005. Overall, he stated: "The EM [emerging markets] asset class is undergoing an important structural change, namely an expansion of corporate financing and a migration from external to domestic financing. At present, these markets are still in the early phase of their development, and periodic volatility and sharp corrections can be expected. But over the long run, it is very likely that investors will want to migrate more of their allocations away from shrinking G-3 economies and toward many of these emerging market countries and companies."

Lawrence Jones does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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