Investors are in a massive search for carry as an increasing percentage of the bond markets is generating negative yields. This, amongst other factors, has fuelled huge inflows into emerging market debt (EMD). We are long hard currency EMD and the position has benefited from this search for yield. We wonder, however, has EMD now become too expensive?
On Thursday 4th August Mark Carney delivered a four-pronged package of monetary stimulus to keep the global liquidity party going, after some disappointment from the Bank of Japan last week. Lower for longer remains the message and as long as it lasts then excessive credit growth in emerging markets may well continue to go unpunished.