By Fraser Lundie and Mitch Reznick
We welcomed the decision from Bank of America Merrill Lynch (BAML) this week to retain emerging market issuers in their benchmark Global High Yield Index. We believe emerging markets play a fundamental role in global high yield investing and keeping this area of the asset class in the benchmark is beneficial for both investors and corporate issuers.
We have long advocated the benefits of a truly global high yield bond market, and we have seen significant investor demand for this evolving marketplace in recent years.
Following this week’s annual BAML review, the benchmark Global High Yield Index and its sub-indices will continue to include emerging markets issuers. BAML’s decision is a strong step forward in embracing a truly global investment market
As globalisation continues, it has become more and more difficult to draw any line between nations. Companies are becoming increasingly global; the location of a corporate headquarters means less and less in today’s world. By embracing corporates from across the globe, investors can access risk from a diverse array of locations and credit qualities – allowing for higher risk-adjusted returns.
Further to this, the decision is positive for the ongoing drive for higher ESG standards across the world. The presence of emerging market companies in the global bond markets fosters the development of more open and transparent reporting and dialogue with investors from these jurisdictions.
The presence of a truly global index can lower the cost of capital for issuers of hard currency debt from emerging markets, as it supports an active marketplace into which the companies can issue bonds. Both of these reduce cost of capital and volatility.
Fraser Lundie and Mitch Reznick are co-heads of Hermes Credit, Hermes Investment Management
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