LONDON – Reuters: Analysts say the increase in risk appetite among investors after this week’s US presidential election will likely result in a year-end borrowing spree by developing-country governments.
Emerging market bonds and currencies rose after the US election revealed that Democrat Joe Biden is close to winning the White House.
The US currency slumped to a two-month low, making emerging markets more attractive to non-dollar investors, while the prospect of Biden easing Donald Trump’s trade war with China is seen as another positive sign.
Analysts at Morgan Stanley said in a note on Friday, “Given the favorable market background for this, we expect supply (of debt issuance) to increase in the coming weeks.” They expected a $ 25 billion sovereign debt issue and another $ 5 billion worth of quasi-sovereign debt sales before the end of the year.
The surge comes at a time when the spread of Covid-19 crisis is causing huge financial holes for governments. Analysts had already forecast that total emerging market debt issuance would equal or exceed the record $ 620 billion sold by governments and companies in 2017.
“With this credit pressure easing, governments should tend to come in with a large batch of issuances, as it still looks like the next year will be very difficult,” said Tim Ash of BlueBay Asset Management.
He added that the recovery this week witnessed a jump in buying by investors who are trolling returns, who usually do not buy emerging market debt, which helped even countries such as Oman, which saw a tumultuous debt sale last week, and Sri Lanka, where default fears are growing.
A recent study by the International Monetary Fund showed that the past decade witnessed the largest, fastest and broadest increase in debt in developing countries in the last 50 years.
His calculations indicated that total emerging market debt increased to 60 percentage points of their GDP, while the Institute of International Finance estimates that it increased ten points earlier in the year to an unprecedented level of 230 percent of market GDP. Generally arising.
While many countries are facing huge budget deficits, it is encouraging for countries to take advantage of low borrowing costs.
“It’s clear that credit spreads are shrinking this week, so the cost is lower (for emerging market borrowers) to come in and issue debt now,” said Manik Narain, head of emerging market research at Swiss bank UBS.
He added, “But if it is better for them to do that now or wait for the first quarter of next year … I am not completely sure,” referring to the possibility of the US Federal Reserve pushing global interest rates to go down with more stimulus.
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