Emerging-market company bonds offer better value than U.S. or European corporate debt as developing economies outpace their richer counterparts, Mark Kiesel, global head of corporate bond management at Pacific Investment Management Co. said today.
Emerging market company bonds have returned 17.1 percent this year, according to Bank of America Merrill Lynch’s Global Emerging Market Credit Index, beating the 8.81 percent returned by its Global Broad Market Corporate Index and 6.3 percent return for investing in the Dow Jones Industrial Average.
Pimco likes bonds sold by Russian energy and pipeline companies as well as Brazil’s Petroleo Brasileiro SA, Gerdau SA and miner Vale SA, he said. Brazil’s gross domestic product may grow 7.1 percent this year, and Russia’s may expand 4 percent, compared with 2.7 percent in the U.S. and 1.6 percent in the euro zone, according to Bloomberg surveys.
“We’re seeing less growth in developed countries and faster growth in emerging-market countries,” Kiesel said. “These emerging-market companies have great resources and low production costs and yet the yields are 5 or 6 percent, which is about 1 to 1.5 percent more than what a similarly rated company would be in the U.S. or Europe, so you’re getting a significant yield premium on these companies and yet you’re getting better assets and value.”
Petrobras raised $70 billion last week in the world’s largest share sale and Gerdau, Latin America’s biggest steelmaker, sold $1.25 billion of bonds at a yield of 5.75 percent on Sept. 23.
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