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Kai Ryssdal: Mexico’s been having its share of troubles the past couple of years, drug violence in particular. But investors are taking the long view — the very long view. Yesterday, the bond market lent the Mexican government a billion dollars for one hundred years. It’s the biggest sale of what are called century bonds on record, the first in Latin America. It’s also a ringing endorsement of emerging markets, as investors chase higher returns.
Marketplace’s John Dimsdale reports.
John Dimsdale: Mexico offered bond buyers a 6 percent annual return. That’s an attractive rate for institutional investors like pension fund managers, who can only get less than 2.5 percent for U.S. Treasury bonds. So they jumped at the chance to lock in a good yield.
The vote of confidence doesn’t surprise Pepperdine finance professor Ed Fredericks, who says Mexico’s stock market is up over 8 percent this year.
Ed Fredericks: There’s industry there and there’s a developing middle class. So I think the market there seems very attractive.
Mexico is just one of several emerging markets where foreign money is flowing these days. Indonesia, Brazil and Chile are among the growing economies finding lots of appetite for their bonds.
Roger Nusbaum, the chief investment officer for Your Choice Financial, says those countries are more attractive than Mexico. He’s worried about possible debt defaults and the drug violence there.
Roger Nusbaum: Mexico relies on tourism, of course, from the U.S. To extent this threatens that cash cow for them, clearly it’s one more leg of the stool that becomes wobbly.
The amount of foreign interest in emerging market debt is good news for countries that not long ago were struggling to stay afloat, says Ramin Toloui, emerging markets portfolio manager at Pimco.
Ramin Toloui: Concerns about levels of indebtedness in the industrial world have provided the incentives for many investors to look for opportunities in emerging markets.
He expects those opportunities will be around for while, given the recent instability of the banking system in developed countries.
In Washington, I’m John Dimsdale for Marketplace.
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