cycle, strong consumption and exports 60% of its commodi- ties – mainly wheat and protein – to China. It will continue to see that demand.


Looking at valuations, there are some interesting opportunities in Brazil, even on the sovereign side. And South Africa? We had a local currency position there. We closed it, not because of the rand, but due to the flight to safety and the strength of the dollar. You can put South Africa’s cen- tral bank in the same pocket as Brazil’s. They have been extremely bearish in trying to solve inflation and have shown their credentials for political independence. While there are issues in the country, they are showing signs of growing and developing, which makes sense to us as an investor. Lasocki: I agree and would not say that Brazil or South Africa are anywhere near the top of the list of worries for EM debt investors. For me it is China. Talk of a commodity boom is pre- mature. It is a frail commodity rally. Unlike the one between


14 September 2022 portfolio institutional roundtable: Emerging market debt


2002 and 2008, it is not based on strong fundamentals and a fantastic emerging market story, which was when China was growing at double-digit rates and most EM countries were light in debt and had a lot of room to grow. That rally was based on the demand side, whereas now, with a few exceptions, the underlying reasons driving the rally are dis- ruptions on the supply side, for example shocks to wheat pro- ducers or energy supply. To me, China is the biggest risk because the commodity boom is not going to support growth in EM. China is super reliant on its real estate and financial sectors and there is little room for error left. It would be a bloodbath if a sector that covers so much of China’s GDP falls further. Arevalo: There has already been a bloodbath. Lasocki: Some investors may see value in this if they want to exploit distressed opportunities. I would tread carefully, unless you want to rely on a recovery. This is a different way of investing.


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