The risks of reaching for yield in emerging markets

Anyone investing in Asian government debt would have got a good rate of return in the last year or two. But it is by no means a safe haven. It carries a lot of risk, says Cris Sholto Heaton. Here, he explains why, and suggests some alternative emerging market investments instead.

Sometimes we make the right investment calls for the wrong reasons. A couple of years ago, I suggested that Asian local currency government debt looked attractive. And that view played out even better than I hoped.

Had you bought the ABF Pan Asia Bond Index Fund, a broad-based Hong Kong-listed exchange-traded fund (ETF), at the start of 2010, you would have made 30-35% including dividends and currency appreciation. Returns on higher-yielding debt from some individual countries have been two or three times that.

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Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.