Quiz: how much do you know about emerging market bonds?

When we talk about investing in emerging markets, we often think first about equities. Yet emerging market bonds can be another way to gain exposure to these economies.

While these bonds will be higher risk than an investment grade UK or US corporate or government bond, they should be less volatile than a stock market investment and they could make an excellent diversifier in an income portfolio. So how much do you know about the asset class?

Richard House, manager of the Elite Rated Standard Life Investments Emerging Market Debt fund, and his team have put together a few questions to help you test your knowledge! Scroll down for the answers and good luck!!

Questions: true or false?

  1. The last US Federal Reserve (the Fed) hiking cycle took place in 2004. Fed funds went from 1% to 5.25% over the course of a year. The previous rate hiking cycle started in 1999, where Fed funds went from 4.75% to 6.55%. During both cycles emerging markets equities fell.
  2. During both cycles referred to above, emerging markets local currencies fell against the US dollar.
  3. During both cycles, emerging markets hard currency bond spreads rose.
  4. Emerging markets account for a larger share of global gross domestic product than advanced economies.
  5. As of 13 November 2016, the Mexican peso has fallen more against the USD than sterling year-to-date.
  6. Government debt as a percentage of GDP is higher in Lebanon than in the UK.
  7. The Bank of England has more foreign exchange reserve than the Central Bank of Brazil.
  8. Emerging market corporate bonds are mostly rated as high yield.
  9. In his purge of Turkish media in 2016, in which 89 journalists were arrested, President Erdogan made the following comment … “Most of the media, seventy percent, seventy-five percent is absolute dishonest, absolute scum.”

Answers

  • False. They rose on average of 50% during the last two rate hiking cycles.
  • False. They rose on average of 17% during the last 2 rate hiking cycles.
  • False. Spreads fell, on average, by 195 bps during the last 2 rate hiking cycles.
  • True: Advanced economies: 42% and emerging markets and developing economies: 58%.
  • False. They have fallen exactly the same 14.80%.
  • True. It is 139% in Lebanon and 90% in the UK. However of the 70 countries in the Emerging Market Bond Index only Lebanon, Mozambique, Mongolia and Jamaica have higher Debt/GDP than the UK.
  • False. Brazil has 3 times the amount. Brazil: $356bn. UK: $117bn.
  • False. 60% of emerging market corporate bonds are investment grade and 40% are high yield.
  • False. It was Donald Trump.

 

 

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views of the author and any people interviewed are their own and do not constitute financial advice.