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Latent demand in the Emerging Markets for retail financial products (micro-finance, mortgages, consumer credit, auto loans, etc.) has only recently begun to be satisfied as legal and regulatory foundations improve. Consequently these structural economic improvements have created a fertile environment for corporate and municipal financings as well. Coupled with the commodities boom, agriculture and mineral companies are also finding innovative approaches to accessing the capital markets. Similarly, municipal governments now have the opportunity to issue infrastructure and future flow bonds.
At the same time demand for debt products is exploding as investors' profiles are shifting to a much longer horizon and thereby creating a much more stable pool of capital. The demand of longer dated credit products is predicated on:
- Western pension funds and insurance companies have begun to view emerging market debt as a core asset which has low correlation to Western bond and equity markets. As such, these institutions are increasing their allocations to emerging market debt but are in need of durations of 3 to 5 years.
- Local pension funds which have precipitously increased their assets under management due to regulatory changes in the past decade need to diversify their assets away from low yielding government debt.
- Central banks are looking to Emerging Markets to park ever increasing amounts of their foreign reserves.
- The financial prudence programs undertaken since the 1990s has finally tamed inflation which allows for government borrowing along an extended yield curve. An extended yield curve predicates the ability to price long duration debt much more easily.
MF Analytics offers a set of efficient liquidity solutions designed to tap into the trends outlined above.
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