PI Partnership – Jupiter Asset Management


In our team, we dig even deeper, asking questions such as: – What might be the effect of higher prices at sector and com- pany level?


– Can persistent inflationary pressures generate second-order effects on political stability?


Alejandro Arevalo is head of emerging market debt at Jupiter Asset Management


Macro-economic shocks rarely have a uniform impact on dif- ferent countries and businesses; both winners and losers emerge. Our team of emerging market credit analysts identify potential winners and losers:


EMERGING MARKET DEBT: WINNERS AND LOSERS


Alejandro Arevalo and Jupiter’s emerging markets debt team weigh opportunities and potential risks in the asset class amid rising inflation, tighter policies and geopolitical tensions.


Emerging markets look extremely attractive relative to their history and other parts of the fixed income universe. If the past is any guide, from these valuation levels, emerging market debt tends to deliver strong risk-adjusted returns. For many investors the question is not just when to buy – but what to buy.


Inflation is pressuring central banks. China is struggling with lower growth and zero-Covid policies. Global growth is threatened by higher prices and tighter policy. Russia’s inva- sion of Ukraine continues. However, emerging market cen- tral banks are ahead of the curve in tackling inflation. Higher commodity prices are a tailwind for many. The presence of an emerging market middle class, particularly in Asia, has made emerging market consumption less dependent on developed markets.


Energy-related inflation, and spikes in prices of basic materi- als, are usually perceived as positive factors for emerging mar- kets, but some countries are net energy importers. Wheat and other agricultural commodities can have significant effects on food importers.


XUCHEN ZHANG, EM CREDIT ANALYST – ASIA


Winners Indonesia – One of the few net commodity exporters in Asia will likely see improving fiscal and external metrics, and robust GDP growth. The central bank has consistently kept monetary policy pro-growth and inflation is under control. We like E&P companies that generate strong cash- flows, and property developers that are set to benefit from improved household balance sheets.


Losers China – A mixed picture: on the one hand the economy has taken a lot of pain thanks to zero Covid, and a pro- longed period of tighter policy, which has taken its toll on the real estate sector. Policymakers have also shown themselves more reluctant to use the major tools at their disposal to ease conditions than in the past, instead using more local targeted measures. Simultaneously, given ambitious growth targets the direction of policy can only get easier from here.


SEA – Philippines, Thailand, Vietnam – All three are net commodity importers and government balance sheets will deteriorate. Moreover, the new Philippine government’s policy remains uncertain regarding the local conglomer- ates that have issued the lion’s share of dollar bonds. India – Oil, metals and fertiliser together account for half of India’s imports, which is a heavy blow to government and household finances. However, this also means renewable energy is more strategically important to the government as a sustainable solution. We continue to like this sector.


The value of active minds: independent thinking A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance consi- derations – are those of the author(s), and may differ from views held by other Jupiter investment professionals. Investment Risks Market movements and exchange rate movements can cause the value of an investment to fall as well as rise and you may get back less than originally invested. When in- vesting in developing geographical areas there is a greater risk of volatility due to political and economic change, fees and expenses tend to be higher then in western mar- kets. These markets are typically less liquid, with trading and settlement systems that are generally less reliable than in developed markets, which may result in large price movements or losses to the investment.


20 September 2022 portfolio institutional roundtable: Emerging market debt


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