top of page

The Case for Emerging Markets Distressed, Stressed and Dislocated Credit Investing

The Case for Emerging Markets Distressed, Stressed and Dislocated Credit Investing


The Growing Opportunity set for Emerging Markets Credit


The Emerging Markets (EM) credit sector has witnessed significant growth, with its tradeable debt stock expanding 15% annually from 2000 to 2020. The foreign currency debt alone has doubled since 2008, surpassing $4 trillion, while domestic debt is nearing $25 trillion. Despite this substantial growth and higher Sharpe ratios compared to US Treasuries, EM credit is still underrepresented in many institutional portfolios. This asset class offers attractive features such as robust returns, relatively low volatility, and low correlation with global market movements, making it a valuable option for portfolio diversification.


Distressed EM credit opportunities have surged due to factors like strong USD periods, rapid increases in foreign debt, and economic downturns affecting corporate revenues. Currently, there is over $300 billion in distressed bonds, with an even larger volume in off-index bonds. The inefficiency in this market, due to limited participation, contrasts with the comparable recovery prospects seen in developed markets, presenting unique investment opportunities for substantial returns.


Despite the strong performance and significant outperformance of other asset classes from 2010 to 2020, distressed EM credit remains largely overlooked. Loans in this segment often offer higher returns for similar credit risks and come with a strong liquidity premium for less liquid assets, leading to pronounced pricing discrepancies between loans and bonds. This market's limited competition for distressed loans presents considerable opportunities for investors willing to take on some illiquidity for potentially high gains.


Access the full article to delve deeper into the burgeoning opportunities within the Emerging Markets credit sector. Uncover how this underrepresented asset class can significantly enhance your investment portfolio through diversification and robust returns. Explore the dynamics of distressed EM credit and learn how to capitalize on these opportunities for substantial financial gains.



If you do not have a work email address, please email us at info@primealpha.com and we can email you the report directly.



Table of Contents

  • The Growing Opportunity set for Emerging Markets Credit

  • Distressed Credit Dynamics

    • Periods of USD strength often trigger Emerging Markets distressed and stressed credit opportunities.

    • Emerging Markets distressed credit opportunities likely to continue growing.

    • Emerging Markets distressed credit, despite its equity-like features, has dramatically outperformed other asset classes in the last cycle (from 2010 – 2020).

    • Strong liquidity premium for less liquid assets.

    • Stressed / distressed loans further benefit from an even more limited audience of prospective buyers.




Thanks to our Contributor

Sandglass Capital Advisors Logo


Sandglass Capital Management focuses on investments in Distressed, Dislocations, and Deep Value across the Emerging Markets and frontier world. Sandglass founders believe that the space represents an Alpha rich universe of potential investment opportunities with significant convexity of returns and limited correlation to global market factors. Asset prices in emerging markets are prone to frequent dislocations and mispricing that can create asymmetric return opportunities for diligent investors.

Access PrimeAlpha
Alternatives Education, Research, Database of Managers and Investors

Important Disclaimers
This article (the “Article”) is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any investment or any securities. This Article does not constitute investment advice and is not intended to be relied upon as the basis for an investment decision, and is not, and should not be assumed to be, complete. Readers should make their own investigations and evaluations of the information contained herein. The information contained herein does not take into account the particular investment objectives or financial circumstances of any specific person or entity who may receive it. Each reader should consult its own attorney, business adviser and tax adviser as to legal, business, tax and related matters concerning the information contained herein.  Except where otherwise indicated herein, the information provided herein is based on matters as they exist as of the date of preparation and not as of any future date and will not be updated or otherwise revised to reflect information that subsequently becomes available, or circumstances existing or changes occurring after the date of preparation. Certain information contained in this Article constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,”  “target,” “project,” “estimate,” “intend,” “continue” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking statements. Readers should not rely on these forward-looking statements.  Certain information reflects subjective determinations which may prove to be incorrect. There can be no assurance that the estimates or projections will be accurate or that historical trends will continue. In considering the prior performance information contained herein, readers should bear in mind past performance is not necessarily indicative of future results. All rights reserved. The material may not be reproduced or distributed, in whole or in part, without the prior written permission of PrimeAlpha LLC.

bottom of page