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Feature: emerging markets FX dilemma
01 February 2010
Fund managers are considering whether to hedge their currency exposure to emerging market assets over the medium and long term
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emerging markets
FX
dilemma
Emerging market economies now account for 50% of the global GDP. Emerging market equities have risen from 4% of the MSCI global equity index in 2002 to around 12% now. Hard currency emerging market debt has become a mainstream asset class with an average credit rating for the indices that is clearly moving into investment grade territory.
Meanwhile, local currency emerging market debt is becoming an increasingly popular asset class and its importance can be seen in a number of ways. Since 2002, local currency debt has risen from less than 40% of the total market value of emerging market debt outstanding to more than 75%. In the first half of 2009, $47bn was issued, beating the $36.7bn total for 2008 as a whole. Not surprisingly, this has led to a number of new funds being launched and more widespread investor appetite.
Few would argue that the proportion of...
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