Some emerging market bonds have in recent years become increasingly attractive to foreign investors. Many emerging markets came through the financial crisis without too many problems and are in a relatively health condition. Not only the large developing economies such as China, India, Brazil and Russia but also rising stars such as Indonesia, Vietnam and Thailand are becoming more attractive to investors.

Many countries in Africa, Asia and Latin America are high growth economies. The unpredictable economic policies of years gone by have given way to governments ruled by their heads rather than their hearts in economic policy. Many governments of these regions are guided by principles of sound governance and economic discipline, fostering solid growth and improving the living standards of their populations.

In addition to the debt instruments issued in foreign currency it is now possible for investors to purchase bonds that are issued in the local currencies of high growth economies. Sound social policy in some growth economies is leading to the establishment of local pension funds and investment institutions. Increasingly the institutional investors in the high growth economies want to manage their risk by investing in debt instruments in local currency.

As the economic management becomes more precise in developing countries, the sovereign debt gains a higher credit rating. This coupled with the chance of a higher yield than developed country bonds gives an incentive to investors to buy. The prospects for growth in many of these countries offer chances of capital gains in the future.

Another reason for the attractiveness of developing market debt is the possibility it offers of diversification of an investment portfolio. Emerging market debt is a separate asset class with its own risks and rewards that show low correlation with many other asset classes. Although the investor must take into consideration the credit risk and currency risk that may be involved, the chance of higher yields makes it worthwhile to consider diversifying into this asset class.

The strong monetary policy evident in many high growth economies of Asia and Latin America gives some prospect of low inflation and an appreciating currency. The investor can never ignore the risks of investing in a different market and a foreign currency but the economic fundamentals in many countries suggest that the investment will show a profit. Compared to developed countries where yields on many classes of investment are low the developing country debt instruments show promise as an investment that will yield gains.

An investor looking for the right investment must look at each developing economy and examine the investment opportunities in each. The investment must be made after assessing the credit and currency risk and looking at the economic environment, economic and political risk and the future prospects for each economy. Emerging market debt is not just one homogeneous market but there are differences in the prospects for investors in each particular country.

The future prospects for emerging market bonds are promising as confidence in their governments and economic policies grows. International investors are realizing that many developing countries are beginning to see the fruits of sensible economic policies. The sovereign debt of these countries, and increasingly also the corporate bonds of companies based in developing countries, will become a realistic target for investors.

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