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From Adviser Guide: Emerging market debt funds

Q: What is the credit quality of emerging market debt?

An investor who is looking for credits of a particular quality finds plenty of opportunities within the emerging market debt space.

By Emma Ann Hughes | Published Jul 12, 2012 | comments

The average credit quality of emerging market debt ranges from A- for emerging currencies to BBB- for emerging sovereign debt, according to Rob Drijkoningen, head of global emerging markets for ING Investment Management.

Within hard currency, Mr Drijkoningen said 55 per cent of the sovereign and 70 per cent of the corporate benchmarks are investment grade.

The average rating of the corporate benchmark (BBB) is therefore higher than the average rating of the sovereign benchmark (BBB-), he added.

The average ratings of both local currency sub-asset classes are also investment grade; local money markets are rated A- and local bonds are rated BBB+ (according to S&P credit ratings).

Moreover, Mr Drijkoningen said default rates in the emerging market corporate space have, on average, been lower than those in US High yield space.

No investment grade emerging market corporate has defaulted in a given calendar year since the benchmark was backfilled from January 2003, Mr Drijkoningen added.

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