The rally in risk markets emphasizes the importance of identifying relative-value opportunities across global asset classes. Emerging market high yield bonds may increasingly draw investors’ interest given a spread pickup relative to their U.S. and European counterparts.
Yet, the ability to capitalize on attractive spread opportunities depends on the ability to dodge value-trap potholes that may be lying in wait. We’ve previously examined how nuances across individual issuers can affect alpha generation within the emerging market corporate sector. This paper complements our prior work by extending that analysis to three industries—oil & gas, telecommunications, and metals & mining—that were responsible for more than half of the EM corporate defaults since 2010.
We start with a brief look at how industry performance can affect portfolio returns and follow with an analysis of the myriad factors—such as commodity price volatility, obsolete technology, currency mismatches, and ESG failures—found throughout our sample industries. We conclude each section with characteristics that we seek to identify before investing within the respective industries.