Our CHART OF THE DAY today shows the staggering rush of cash into emerging market bond funds in just the last year.
Quantitative easing in the US is obviously pushing a lot of cash around the world, but that’s not the only story here.
See, emerging markets have always held allure for risk-hungry investors eager for growth. But the mood is really changing, and in addition to the growth of emerging markets, there seems to be a brewing sentiment that risk is lower in emerging markets.
Because most EM sovereigns aren’t loaded with debt up to the wazoo, and because the debt in the west is the #1 systemic fear, there’s a certain you-can-have-your-cake-and-eat-it-too mentality to emerging market investments.
Of course, this risk-free-reward never lasts, and in fact the place where investors are chasing for yield, is usually the scene of the next crime, or the next blowup. And when that does happen, a lot of investors are going to feel like idiots, not unlike the investors who thought it was a great idea to lend money to homeowners with no jobs.