The whys and hows of investing in Emerging-Market Corporate Bonds

For years, when institutional investors talked about the composition of their EM bond portfolios, they were talking about currency. Some bonds would be denominated in US dollars or another “hard” currency, others in the local currency of the issuing country—Mexican pesos, Turkish lire, Chinese renminbi. But nearly all of them were government-issued sovereign bonds.

EM corporate bonds have historically been relegated to the periphery of fixed-income portfolios—if they’re represented at all. There was US$113 billion benchmarked to J.P. Morgan’s EM corporate indices as of June 30, about one-sixth of the amount tied to its hard- and local-currency sovereign indices.