least until the invasion of Ukraine. Still, most of the times wider EM suffered, Central and Eastern European currencies and bond spreads followed.


The bottom-up view is important. For exam- ple, even though you may have a negative view on the sovereign, you may find compa- nies with potential for spread contraction and a strong ESG upside in that country. It is important to be active in this space. Investing passively in emerging market bonds is a recipe for disaster. Arevalo: What is interesting is that the funda- mentals are out of the door. Prices are being driven by outflows. In the year to date, we have seen about $50bn (£41bn) of outflows from EM, half of that is local currency. Across the industry you hear that prices have dropped because there are so many forced sellers. No one wants to stand on the other side. The big counterparties are not willing to take bonds into their inventory and unless someone is willing to buy the bonds they will continue to be marked down.


There are some interesting opportunities out there but I am not jumping in yet because a lot of investors are “tourists”. They like the yield, they like the story but they jump out at the first bad headline. That has created volatility, which creates opportunity. An Indonesian quasi-sovereign, for example, has tended a bond. Shortly after the announcement we could buy that bond for five points below the tender price. These


Pickering: Regulators have tried to help end-users by having classifications that are simple and top-down, but, as we just heard, those classifications can make us lazy. We can tar every- thing with the same brush and yet differentiation is key given that within these top-down classifications there are a diverse family of assets, opportunities and risks.


Those who create standards have to be careful not to create unintended consequences when trying to make life easier for people like me. My life should be made more difficult, rather than relying on some classification where everything in the tin is homogeneous, which it isn’t. Lasocki: It is an important point about how investors see EM as a whole. That creates a number of opportunities because cer- tain areas, regions or sectors tend to be oversold at times of stress. Countries in central Europe, for instance, usually had little to do with the worries in the global emerging markets, at


forced sellers need to raise cash and were willing to give up five points because they do not want to hold the paper for the next three weeks. I have not seen that since 2008. This panic we are seeing in the market makes no sense.


Have the sell-offs tempted you, Paul? Rhodes: A lot of the companies mentioned are in commodities, like oil and coal. Many DC boards have net-zero targets, some of which are quite aggressive, but many emerging market countries have targets that stretch beyond 2050. So there is an argument that some of these vehicles may not be viable. It comes down to being specific and targeting things. Some DC schemes may not be interested in buying debt from oil produc- ers or companies with high emissions.


There are a lot of questions, especially as the regulator wants us to take climate change into account. We have to look through


September 2022 portfolio institutional roundtable: Emerging market debt 11


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