Low market volatility spurred a ‘torrent’ of capital flows into emerging-market debt, reflecting investor complacency and ‘excessive risk taking,’ Bank of America Merrill Lynch strategists led by David Hauner in London wrote in a report last week. He warned that the second half of the year should bring challenges for lower-rated issuers as higher interest rates in the U. S. reduce some of the appeal of junk credits with relatively steep interest rates.
‘The market is at a point where we haven’t hit a real bump in the road to wake everyone up.’
And they are not alone. Since entering the world of emerging markets nearly three decades ago, Robert Koenigsberger, who oversees $6 billion as chief investment officer at Greenwich, Connecticut-based Gramercy Funds Management, has seen more than his share of changes. One of the most consequential, BloombergQuint.com reports, is the migration of allocators from hedge funds to exchange-traded and mutual funds in recent years.
That’s effectively made ETFs one-day liquidity vehicles, versus the 90-day instruments leveraged funds typically offer, which, as Koenigsberger explains simply means:
This post was published at Zero Hedge on Jul 17, 2017.
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