Hermes Credit has welcomed last month’s decision from Bank of America Merrill Lynch to retain emerging market issuers in BAML’s benchmark Global High Yield Index. Fraser Lundie and Mitch Reznick, the co-heads of Hermes Credit, believe emerging markets play a fundamental role in global high yield investing and keeping this area of the asset class in the benchmark benefits investors, as well as the corporate issuers.
Hermes Credit has long advocated the benefits of a truly global high yield bond market and has seen significant investor demand for this evolving marketplace in recent years.
Following the annual BAML review, the benchmark Global High Yield Index and its sub-indices will continue to include emerging markets issuers. Lundie believes 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,” Lundie explains. “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.” Reznick also believes 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,” Reznick adds.
“We believe 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 the cost of capital and volatility.”