Why emerging markets income should be handled with care

'Do not rush in with eyes wide shut'

The search for yield has pushed investors out of the comfort zones of UK equity and fixed income to take on more 'risk' than normal for a meaningful return, including a rush to emerging markets, with inflows in January at the highest in 18 months.

Yield appears to be behind these inflows as a dividend culture is growing in equities and EM debt looks attractive relative to developed markets; indices are yielding 5%-6%, with an extra 1%-2% generated by local currency.  The weakening US dollar strengthens local currency debt and makes dollar denominated-debt easier to finance. Finance is much easier to acquire, and the cost of debt is more attractive.  Gallery: What will frontier markets look like in 2020? Brazil, Russia and South Africa are also all coming out of severe recessions, while India and Indonesia offer relative high...