Investors are ploughing money into emerging market local currency bonds, as high interest rates and falling inflation make them increasingly attractive compared with dollar assets.
In the first four months of the year, investors withdrew a net $2.65bn from funds holding so-called hard currency — predominantly dollar-denominated — emerging market bonds, but added $5.23bn to local currency bond funds, according to fund flow data provider EPFR Global.
The flows mark a reversal of years of investors opting for dollar-denominated debt as a strong greenback broadly drove better and lower-risk returns. This year, the tables have turned with local bonds performing better, as currencies including the Mexican peso and Brazilian real have strengthened more than 10 per cent against the dollar.