By Katie Llanos-Small
Local Currency: Gaining currency
Investors continue to pile into local currency debt. But liquidity limits and strict investment criteria will keep the markets constrained
For a time last year, it seemed that one of the most compelling
narratives in emerging markets investment had run its course.
As eurozone fears reached their climax, a surge in risk
aversion saw investors shun local currency debt – an
asset class which had distinguished itself post-crisis as one
of the most appealing anywhere – in favor of hard
But the retreat didn’t last long. A sharp
improvement in risk sentiment following central bank moves to
put a floor under the crisis lent fresh momentum to the
investment thesis. And the asset class is once again the mostly
highly sought after in emerging markets, as portfolio managers
extend their hunt for yield.
EM local currency debt funds took in $14.7 billion of new
cash in the first quarter of the year, leaving EM hard currency
funds trailing, with just $3.4 billion of inflows, according to
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