Emerging Markets
Putting the move in context: not as bad as it feels
Even if current volatility reminds us of very dark periods like the one marked by the Lehman debacle, the current drop in EM assets prices has not been so terrible so far if compared with past crises. In the end the financial system has now in place many more backstops and liquidity safety nets than in those days of the recent or distant past. At the same time while looking at the following charts it may be a useful reminder that catching a knife while it’s still falling could be a painful mistake, since now this asset class is likely even more crowded than back then.
The charts on the right are of two famous investment vehicles, being amongst the most popular ways used to invest in these markets. It could be a good proxy of the real performance of a portfolio invested in Emerging Markets bonds.
PIMCO Emerging Local Bond Fund is an open-end fund incorporated in the USA. The Fund invests in at least 80% of its assets in fixed income instruments denominated in currencies of countries with emerging securities markets.
Templeton Emerging Markets Bond Fund is a SICAV incorporated in Luxembourg.
The Fund invests
primarily in debt obligations of emerging market issuers. It invests
FX
Chart 4: PIMCO Emerging Local Bond Fund
in
Chart 5: Templeton Emerging Markets Bond Fund fixed-income security
papers
of publicly traded companies in emerging markets and may also invest in bank deposit papers.
Stay away or buying opportunity?
Obviously it is not an easy question to ask,
especially in the middle
of the dust after the recent blast. Comparisons with 1994’s fixed income meltdown (which triggered several EM crises from Mexico, to
Asia and Russia in the following years) or the 2008 Great Financial Crisis are difficult. In the end, as far as
fiscal parameters and debt
overhang levels are concerned, EM countries can still show much better fundamentals than Developed Markets (DM). That was definitely not the case back in the past. On the other end, as shown above, the cumulative inflows to EM have been unprecedented and much of the recent growth of inflows into EM has been a necessary condition
FX TRADER MAGAZINE July - September 2013 13
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