Sección del Observatorio Inverco con informes de mercado de las gestoras de fondos de inversión.

1. November 2012
Emerging market corporate bonds – attractive opportunities in a dynamic
sector
In a world where traditional fixed income investments, such as core government bonds,
offer very low returns to investors, interest in emerging market (EM) corporate bonds has
grown rapidly, and we expect this trend to continue. A number of factors are fuelling
investor demand, including:
Zara Kazaryan The opportunity to lock in a relatively high yield and to benefit from the sector’s
Fund Manager
excellent potential for capital growth.
The increasing depth and breadth of the asset class, which is already bigger than
the EM sovereign debt sector.
The strong financial health of EM corporates – revenues are growing rapidly while
average net leverage is declining.
The accelerating growth of a dynamic and diverse asset class
EM corporate debt provides investors with the opportunity to diversify into a new, dynamic
and growing sector, which we believe remains undervalued and far less well-known than
other financial markets. With a lower profile than the separate asset class of sovereign EM
bonds, the potential of the EM corporate debt sector has been developing in the past few
years. Figures on new issuance highlight the sector’s dynamism and underline the wealth
of new opportunities that are emerging (see Figure 1 below).
Figure 1: New issuance (US$ billion) presents attractive opportunities
Source: JP Morgan. (1) 2H, 2012 EM corporate debt new issuance forecast.
Issued 11/12 | Valid to end February 2013
Page 1 of 5 For investment professional use only

2. External corporate debt new issuance by EM companies increased from US$58bn in 2008
to US$202bn in 2011; whilst US$310bn of new EM corporate issuance is forecast for
2012, with Asia and Latin America leading the way. Investment grade issuers, which
constitute around 75% of new issuance, are driving the record pace of activity seen in
2012.
The surge in companies coming to the market is further increasing the diversity of issuers
across a large range of sectors and countries. The EM corporate bond index is now larger
than the sovereign index (see Figure 2 below) and this gap is likely to widen. This is
because there is clearly a ceiling on the number of countries in the EM universe, while the
potential number of quality corporates coming to the market is vast.
Figure 2: Corporate EM bond universe overtakes sovereign bonds in size
500
450
400
350
300
250
200
150
100
50
0
Dec 01 Jun 03 Dec 04 Jun 06 Nov 07 May 09 Nov 10 May 12
CEMBI Broad EMBIG
Source: JP Morgan
Factors fuelling the growth of the asset class
A number of factors (on both the supply and demand side) are fuelling the dynamism of
the sector. Emerging economies continue to grow at a rapid pace overall and are
increasingly urbanised, while external reserves are also rising dramatically. As the
underlying economies develop, more and more corporates are reaching a position where
they can come to the market and issue public debt.
In addition, as a result of the Basel III regulations, banks are less willing and/or able to
lend to corporates. Although bank lending is still very significant, the availability of loans
has been affected and that has forced a large number of very high quality companies to
diversify their funding sources and turn to public debt markets, whether external or local
(This viewpoint is focused on hard currency EM corporate bonds as opposed to local
currency issues).
Moreover, the continuing European debt crisis, low growth rates and near-zero interest
rates in the developed world have led investors to favour emerging markets. Meanwhile,
growing interest in the corporate debt sector in the emerging world is boosting liquidity
and depth in this market. The growing number of investors attracted to the sector has had
Issued 11/12 | Valid to end February 2013
Page 2 of 5 For investment professional use only

3. a beneficial effect on yields from the borrower’s point of view - companies are able to raise
finance at lower rates than was previously the case as demand for these bonds has
increased. Large corporates prefer the greater flexibility provided by hard currency bonds
which allows them, for example, to become involved in longer-term projects with higher
capital expenditure requirements.
Superior fundamentals remain undervalued
Over the last decade, EM corporate debt has evolved from a small and risky asset class
into a sector with superior fundamentals, improving corporate governance, relatively high
liquidity and credit ratings upgrades. Today, EM corporates in debt capital markets have
significant cash cushions, healthy leverage levels and steadily growing revenues and
EBITDAs (Figure 3 and 4). However, this is yet to be fully reflected in their credit ratings
and in investor perceptions of the underlying risks/reward profiles.
Figure 3: The strong and improving health of EM corporates
3,500
3,000
(US$ million)
2,500 +50%
2,000
1,500 2Q09
1,000
500
-
4Q05 2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11
Source: JP Morgan. September 2012
As Figure 4 overleaf demonstrates, leverage is much lower, on average, among EM
corporate debt issuers than their counterparts in the developed world. Yet, EM corporates
tend to have lower ratings than their developed market peers.
Moreover, while similar companies are rated differently, EM corporate debt sectors pay
higher yields than the equivalent in the developed world. These disparities create
opportunities, which investors can exploit before they are appreciated by the wider
market. We believe that these yield differentials will disappear in the short term since they
clearly do not reflect fundamentals in terms of asset quality.
Issued 11/12 | Valid to end February 2013
Page 3 of 5 For investment professional use only

4. Figure 4: The health of the EM corporates is yet to be reflected in the ratings and
yields
(1) Source: Fitch Ratings; S&P as at 31 July 2011 (latest available data).
(2) Source: EM HY Corp = JPM CEMBI Broad Diversified High Yield Index, EM IG Corp = JPM CEMBI Broad
Diversified Investment Grade Index, US HY Corp = Merrill Lynch US High Yield Master II Index, US IG
Corp = Merrill Lynch US Corporate Master Index, EM Sov= JPM EMBI Global Diversified Index, US Govt
= Merrill Lynch US treasury Master Index
EM corporate debt asset class outlook
Looking to the longer term, the sector should benefit from the faster growth of emerging
economies compared to their developed counterparts, and the rapidly growing number of
EM corporates that are reporting very good earnings and issuing debt to finance their
expansion. The asset class should thus benefit from a further improvement in credit
quality, further yield compression and a continuing increase in diversity.
In addition, the stability of the sector will continue to improve as more and more funds
benchmarked to the EM Corporate Bond Index are launched. Currently, a significant
proportion of investors are attracted to the asset class by its superior yield and they tend
to leave the sector when risk aversion rises. But funds benchmarked to the index continue
to invest in the index during periods of turbulence, thus providing support. Thus, as the
number of benchmarked funds rises, volatility should decline.
Indeed, the effect is already becoming apparent. Given the continuing problems in the
eurozone, the looming US fiscal cliff and the global slowdown, for example, one might
expect to see considerable volatility among EM corporate debt. However, we are actually
seeing large inflows into the sector, which is also gaining support from other positive
factors, namely: income seeking investors have few other options; and emerging
economies continue to grow as their developed counterparts languish under the weight of
hefty debt burdens.
In conclusion, investing in EM corporate bonds does entail risks, including relatively high
levels of volatility and the limited coverage of certain issuers. At the same time, the
diversity of the asset class, pricing inefficiencies and its growth potential provide
significant alpha generation opportunities for active managers. Meanwhile, the stability of
the market is improving as the number of benchmarked funds grows, and the range and
depth of the market rapidly increases. The market is already seeing large inflows and a
number of investors may decide that now is a good time to invest – before its attractions
are fully appreciated (and priced in) by the wider market.
Issued 11/12 | Valid to end February 2013
Page 4 of 5 For investment professional use only

5. Important information
For Investment Professionals use only, not to be relied upon by private pension funds. Past performance is not a guide to the future. The value of
investments and any income from them can go down as well as up. This material is for information only and does not constitute an offer or solicitation of an
order to buy or sell any securities or other financial instruments, or to provide investment advice or services. The research and analysis included in this
document has been produced by Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is
made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice. Information obtained
from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed. Issued by Threadneedle Asset Management Limited.
Registered in England and Wales, No. 573204. Registered Office: 60 St Mary Axe, London EC3A 8JQ. Authorised and regulated in the UK by the Financial
Services Authority. Issued in Hong Kong by Threadneedle Portfolio Services Hong Kong Limited ("TPSHKL"). Registered Office: Unit 3004, Two Exchange
Square, 8 Connaught Place, Central, Hong Kong. Registered in Hong Kong under the Companies Ordinance (Chapter 32), No. 173058. Authorised and
regulated in Hong Kong by the Securities and Futures Commission. Please note that TPSHKL can only deal with professional pension funds in Hong Kong within
the meaning of the Securities and Futures Ordinance. The contents of this document have not been reviewed by any regulatory authority in Hong Kong. You are
advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this document you should obtain independent professional
advice. Issued in Singapore by Threadneedle Investments Singapore (Pte) Limited, 07-07 Winsland House 1, 3 Killiney Road, Singapore 239519. Any Fund
mentioned in this document is a restricted scheme in Singapore, and is available only to residents of Singapore who are Institutional Pension funds under
Section 304 of the SFA, relevant persons pursuant to Section 305(1), or any person pursuant to Section 305(2) in accordance with the conditions of, any other
applicable provision of the SFA. Threadneedle funds are not authorised or recognised by the Monetary Authority of Singapore (the “MAS”) and Shares are not
allowed to be offered to the retail public. This document is not a prospectus as defined in the SFA. Accordingly, statutory liability under the SFA in relation to the
content of prospectuses would not apply. Threadneedle Investments is a brand name and both the Threadneedle Investments name and logo are trademarks or
registered trademarks of the Threadneedle group of companies.
This material includes forward looking statements, including projections of future economic and financial conditions. None of Threadneedle, its directors, officers
or employees make any representation, warranty, guaranty, or other assurance that any of these forward looking statements will prove to be accurate.
Issued in the US by Threadneedle International Limited (“TINTL”), a U.K.-based investment management firm provides financial services to individual and
institutional pension funds. TINTL is registered as an investment adviser with the U.S. Securities and Exchange Commission and is authorised and regulated in
the conduct of its investment business in the UK by the UK Financial Services Authority.
Issued 11/12 | Valid to end February 2013
Page 5 of 5 For investment professional use only