Home Market Norway Wealth Funds move to cut EM debt may hit India, too

Norway Wealth Funds move to cut EM debt may hit India, too

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ET Intelligence Group: The decision of Norways sovereign wealth fund (SWF) to reduce exposure to emerging market (EM) bonds may shrink their depth especially if other SWFs follow suit. Norges Bank, the worlds largest sovereign wealth fund, has assets under management (AUM) worth $1trillion. Currently, it has a higher exposure to EMs, including South Korea, Mexico followed by Brazil, Indonesia, South Africa and India. Its decision to cut debt holdings in emerging markets is expected to result in a $12-billion outflow from these markets.

The rationale for cutting the EM exposure is the rising correlation between the returns of emerging and developed market bonds, which reduces the excess return from EM investment after considering the currency fluctuations.

Foreign funds have AUM of Rs 4.1 trillion ($59 billion) in the Indian debt market, accordingRead More – Source