donald trump <u+2019>s election victory and ideas that u.s. interest rates are about to move higher have shaken up the investing landscape. investors who sent funds to far-flung parts of the world in hopes of locking in better returns than were available in many developed markets, where interest rates have been at rock-bottom levels, are tearing up their playbooks. here are some markets, from chinese property to hungarian stocks and european sovereign debt, that look vulnerable in the new era. the fortunes of malaysian government bonds have started to turn. previously, they had been a favorite in the rush to emerging markets, absorbing $6.92 billion through the end of october, according to australia & new zealand banking group ltd. the yield on the benchmark 10-year bond fell as low as 3.491% in august, down from 4.179% in january. but in the past week, the yield perked back up above levels seen at the beginning of 2016. the high foreign ownership of malaysian government bonds, which rose to more than 50% this year, is re-emerging as a concern. malaysia<u+2019>s exposure to foreign creditors has been growing steadily since 2007. <u+201c>precisely because of high foreign ownership the market can be vulnerable to capital outflow risks,<u+201d> said frances cheung, head of rates strategy for asia, excluding japan, at soci<u+00e9>t<u+00e9> g<u+00e9>n<u+00e9>rale in hong kong. <u+2014>rachel rosenthal chinese savers have been plowing their money into real estate, with few other safe places to invest. recently, some of the most rapid price gains have come in so-called tier 2 cities. in zhuhai, a southern coastal city bordering macau, prices measured in yuan per square meter rose nearly 40% year to date by october. local incomes haven<u+2019>t grown similarly. in zhuhai, one square meter of property costs nearly 19,500 yuan ($2,839). meanwhile, disposable income per capita in zhuhai<u+2014>a measure of annual spending power<u+2014>is just 38,322 yuan ($5,579). <u+201c>we are probably very close to what we call a choking point,<u+201d> said chen zhao, co-director of global macro research at brandywine global in montreal, with $70 billion in assets. <u+201c>any shock could lead to a reversal.<u+201d> <u+2014>rachel rosenthal china<u+2019>s rising mountain of debt is causing angst, yet investors are still piling into the corporate bond market. the difference between yields on triple-a rated corporate bonds maturing in five years and government bonds reached its narrowest point on record in october, according to data going back to 2007 from wind info, and is still well down from the start of the year. in theory, the narrowing of this so-called credit spread is a sign investors are confident about the health of chinese companies. yet with credit having grown by 20% a year on average from 2009 to 2015, many expect bad debt will continue to rise in china a particular concern is the $380 billion worth of u.s. dollar-denominated debt that chinese companies have outstanding from an issuance surge in recent years, according to dealogic. with the dollar steadily rising against the yuan as expectations of a fed rate rise mount, that debt is already getting more expensive to pay back. <u+2014>rachel rosenthal indonesia was a big winner in the rush to emerging markets this year, drawing in $7.8 billion since january. the rupiah became one of asia<u+2019>s best-performing currencies, strengthening 6% against the dollar through to u.s. election day. at that point, a measure of the rupiah<u+2019>s volatility was at its lowest level since just before the taper tantrum of 2013, according to bnp paribas. at the time, fears that the fed would pull back from its bond purchases spurred rapid outflows from emerging markets. when mr. trump won the election, the rupiah swung wildly, falling as much as 2.7% against the u.s. dollar. in recent days, the central bank has been intervening to keep the currency stable. foreigners, who own nearly 40% of indonesian government bonds, sold $1 billion worth of indonesian debt in the week after the election, according to the institute of international finance. <u+2014>rachel rosenthal ultraloose central-bank policies have led to a rally in junk bonds. higher interest rates could make them less appealing. yields on u.s. dollar-denominated high-yield bonds had risen to 6.66% as of thursday, up from 6.44% before the u.s. election, but much lower than their february peak of 9.7%, according to bank of america merrill lynch. most of that move is explainable because safe government-bond yields have gone up as well, and junk-bond yields have tracked them. in fact, the extra return demanded by investors for buying riskier junk bonds hasn<u+2019>t gone up much and remains low. however, spreads have the potential to widen quickly due to expectations of faster rate increases, leading to a selloff. even more violent would be the drop in emerging-market junk bonds, where risk spreads are at record lows. according to investors, much will depend on whether mr. trump<u+2019>s promises of tax cuts and higher spending continue to bolster risk appetite. <u+201c>domestic focused u.s. companies could benefit,<u+201d> said azhar hussain, head of global high yield at royal london asset management. <u+201c>the losers are likely to be large corporates with operations in emerging markets, as protectionism seems to have won.<u+201d> <u+2014>jon sindreu amid record low interest rates, property prices have soared in some developed countries. in sweden, they are up roughly 40% over the past three years, according to the nasdaq omx valuegard-kth housing index. moreover, property prices have climbed steeply in relation to disposable income in recent years, according to analysis from sweden<u+2019>s central bank, the riksbank. <u+201c>prices are extremely high by a historical perspective,<u+201d> said carl hammer, chief currency strategist at swedish lender seb. these gains have come as the riksbank has lowered interest rates below zero and increased its bond buying in a bid to hold down the national currency and make sure a recovery in inflation continues. as house prices increase at a greater speed than wages, buyers are taking on more debt. those who have taken out floating-rate loans are the most at risk if interest rates start rising. <u+201c>housing prices and household indebtedness are continuing to rise, making households and banks more vulnerable,<u+201d> the central bank wrote in its latest report on financial stability. <u+2014>christopher whittall hungarian financial markets have been on a tear over the past 12 months, with budapest<u+2019>s benchmark bux stock index up nearly 26%. two ratings companies upgraded the country to investment grade this year, but central-bank action has also been a factor behind the gains. hungary has benefited from low u.s. interest rates that have led investors to look for better returns on more risky assets. some of the cash from the european central bank<u+2019>s vast money-printing program has spilled into hungary too. hungary<u+2019>s own central bank has also played a part, becoming the first central bank in a developing economy to lower interest rates below zero earlier this year. pal saaghy, chief dealer at hungarian brokerage equilor, said the hungarian stock market will likely be hit when the fed starts raising interest rates. still, the main catalyst for a selloff will come if the ecb decides to end its bond buying next year. <u+2014>christopher whittall easy central-bank policy has helped push up european government and corporate bond prices in recent years, sending yields to record lows. that has started to reverse since mr. trump<u+2019>s election. the selloff could accelerate once the fed starts raising rates and the european central bank starts pulling back on its bond-buying program, which could drag up bond yields across the world. the european bond market now <u+201c>is really, really distorted,<u+201d> said jeroen blokland, a senior portfolio manager at dutch fund manager robeco. by the end of last month, there was about $3.9 trillion worth of negative-yielding debt outstanding in europe, according to bank of america merrill lynch. european borrowers have sold about $68 billion in debt this year that has no regular interest payments, according to dealogic. ireland and belgium have both sold 100-year bonds in privately-placed deals this year. last month, austria issued a 70-year bond. last week, those bonds dropped by as much as 13% in price terms from a high reached before mr. trump<u+2019>s election amid a rise in global bond yields, according to tradeweb. that could mean more pain for investors. <u+2014>christopher whittall
danger ahead for <u+2018>hot spot<u+2019> markets? - wsj
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