Dividend-News

Brexit Intensifies The Search For Yield Within Emerging Markets

Published Thu, 18 Aug 2016 15:48:25 -0400 on Seeking Alpha

The impact of the U.K.'s Brexit decision in June to withdraw from the European Union continued to influence global markets as the month began. With developed markets government bond yields hitting record lows, investor focus turned away from the potential economic impact of Brexit and toward finding areas of the market where one can still earn sufficient income. According to J.P. Morgan, emerging markets (NYSE: EM) debt funds appear to have been a significant beneficiary of the U.K.'s decision, attracting almost $14 billion globally in July alone.
Investors Shrug off Geopolitical Risk
As the markets appeared to have digested the near-term impacts of the U.K. referendum, geopolitical risk flared up again on July 15 with news of an attempted coup in Turkey. The immediate market impact of the failed coup attempt was a 4.6% plunge in the Turkish lira, already an underperformer for the year thus far, and significantly wider spreads on Turkish sovereign bonds. The country was already experiencing sluggish economic growth, impacted in part from a collapse in tourism, and weaker confidence may dampen potential improvement. Standard & Poor's responded with a downgrade of Turkey's credit rating to junk status, and Moody's Investors Service placed the country's credit rating on review. Although in general, economic fundamentals for emerging markets countries have turned more positive during the first half of 2016, such has not been the case for Turkey.... Read more