We examine the rate of return earned by global funds on equity investment in emerging markets (EMs) particularly the role played by sovereign credit risk. Changes in sovereign credit ratings by global agencies influence excess (over risk free rate) returns earned by foreign investors: lower excess returns are associated with lower risk. The effect of credit upgrades and downgrades, however, is not symmetric. Information contained in credit outlook or credit watch announcements does not seem to influence excess returns. When it comes to abnormal (risk-adjusted) returns, foreign investors treat the information contained in credit ratings differently from that in outlook/watch announcements. The differing effect of these announcements is not evident for risk-adjusted returns for the broad stock market index. There is evidence, however, that the behaviour of foreign investors influences significantly risk-adjusted returns in EM stock markets.