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Emerging Markets Embrace Convertibles to Access Growth Capital, With Issuance Almost Doubling Since 2016

Starting in the early 1800s, back when the United States was an emerging market, convertible securities were used to finance the building of railroads, steel manufacturing, distilling, steam pumps, gas pumps, the telephone and the telegraph.

Fast forward 200 years, and convertibles are increasingly being put to use by companies in today's emerging markets. Convertibles are helping fund the development of e-commerce, electric vehicles, travel, and mobile payments, as well as more capital-intensive and cyclical industries.

As EM capital markets evolve, capital structures and financing methods do as well, explains Todd Speed, CFA, Calamos Senior Vice President and Portfolio Specialist. Convertibles offer companies access to growth capital while enabling them to reduce interest costs and face fewer restrictive covenants than involved in issuing traditional corporate bonds. (For more on the evolution of convertibles in the U.S., see our guide written by Calamos Founder, Chairman and Global CIO John P. Calamos, Sr., with contributions from Eli Pars, CFA, Co-CIO and Senior Co-Portfolio Manager.)

Emerging markets companies’ use of convertibles has grown dramatically over the past five years. Consider:

  • The number of EM issues has more than doubled from 36 with a market value of more than $11.6 billion at the end of August 2016 to 93 with a market value of $60.1 billion through October 31 of this year.
  • From August 2016 to October 2020, EM convertibles have nearly doubled their share of the global convertibles market, increasing from 6.7% to 12.8%.

emerging markets convertible issuance has almost doubled since 2016

A Differentiator in the Calamos Approach to EM

The inclusion of convertible securities is a key differentiator in the Calamos Evolving World Growth Fund (CNWIX), and one that has contributed favorably in 2020. As much as 18.9% of the fund’s portfolio was invested in convertibles—both in local EM companies and in global businesses with significant revenue ties to emerging markets—as of September 30. For more, see Convertible Securities: A Key Lever in a Dynamic EM Approach by Nick Niziolek, CFA, Co-CIO, Head of International and Global Strategies, Senior Co-Portfolio Manager, and Speed.

Speed says the CNWIX team is encouraged by the issuance it’s seeing from companies in a range of industries in emerging markets, and it expects these trends to persist over the coming years as EM capital markets develop further. EM companies will be able to take advantage of the ability to access lower cost capital by embedding a conversion option into their debt. With convertibles, EM issuers should also be able to take advantage of their relatively high volatility as well as increasing stock valuations over time.

Investment professionals, for more information about the Calamos perspective on convertibles in emerging markets or about CNWIX, contact your Calamos Investment Consultant at 888-571-2567 or caminfo@calamos.com.

Before investing carefully consider the fund’s investment objectives, risks, charges and expenses. Please see the prospectus and summary prospectus containing this and other information which can be obtained by calling 1-800-582-6959. Read it carefully before investing.

An investment in the Fund(s) is subject to risks, and you could lose money on your investment in the Fund(s). There can be no assurance that the Fund(s) will achieve its investment objective. Your investment in the Fund(s) is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. The risks associated with an investment in the Fund(s) can increase during times of significant market volatility. The Fund(s) also has specific principal risks, which are described below. More detailed information regarding these risks can be found in the Fund’s prospectus.

The principal risks of investing in the Calamos Evolving World Growth Fund include: the risk the equity market will decline in general, the risks associated with growth securities which tend to trade at higher multiples and be more volatile, the risks associated with foreign securities including currency exchange rate risk, the risks associated with emerging markets which may have less stable governments and greater sensitivity to economic conditions, and the risks associated with convertible securities, which may decline in value during periods of rising interest rates.

Convertible Securities Risk: The value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also, may have an effect on the convertible security’s investment value.

As a result of political or economic instability in foreign countries, there can be special risks associated with investing in foreign securities, including fluctuations in currency exchange rates, increased price volatility and difficulty obtaining information. In addition, emerging markets may present additional risk due to potential for greater economic and political instability in less developed countries. Total return assumes reinvestment of dividends and capital gains distributions and reflects the deduction of any sales charges, where applicable. Performance may reflect the waiver of a portion of the Fund’s advisory or administrative fees for certain periods since the inception date. If fees had not been waived, performance would have been less favorable.

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