In­vestors turn more cau­tious on

The Pak Banker - - 6BUSINESS -

In­vestors are turn­ing more cau­tious about dol­lar bonds from "fron­tier" mar­kets - a fast grow­ing but less de­vel­oped and higher risk sub-set of emerg­ing economies - due to slid­ing oil prices, low trad­ing vol­umes and ex­pec­ta­tions of smaller re­turns.

Within the di­verse group of economies, which ranges from Be­larus and Belize to Egypt and Pak­istan, in­ter­est is likely to shift in 2015 to­wards en­ergy im­port­ing na­tions that will ben­e­fit from cheaper crude, and away from oil ex­porters. Debt is­suance by fron­tier coun­tries is a small pro­por­tion of the to­tal for emerg­ing mar­kets, which are dom­i­nated by big­ger names such as Brazil or Rus­sia. But their gov­ern­ments have made the most of in­vestors' hunt for bet­ter re­turns while in­ter­est rates in de­vel­oped economies re­main ul­tra low.

Ac­cord­ing to Thom­son Reuters data, fron­tier coun­tries sold $19.7 bil­lion in hard cur­rency debt last year - an almost 50 per­cent rise from 2013 and nearly three times the 2012 level.

Yet many, es­pe­cially oil ex­porters such as Nige­ria and Ecuador, are likely to be hit hard this year by the dra­matic drop in crude prices, said Kevin Daly, port­fo­lio man­ager at Aberdeen As­set Man­age­ment's emerg­ing debt team.

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