Roundtable – Emerging market debt
EMERGING MARKET DEBT: QUESTIONS AND ANSWERS
Emerging markets are expected to continue driving the world’s economy and much of this growth is funded by debt. We brought a panel of experts together to find out how investors are approaching these markets.
How are institutional investors approach- ing emerging market [EM] debt? Andreas Anthis: We started investing in emerging market debt in 2010 through a benchmark strategy with a 3% allocation, but in 2015 we took a different approach. Our allocation increased and we switched to an absolute return approach given that emerging markets are volatile and capital preservation was our main interest. Since 2015, we have been investing through external strategies as well as trad- ing internal overlays across all segments of the asset class, including local currency, hard currency, high yield, investment grade and corporates. Anders Lundgren: We have been invested in a pooled fund managed by Amundi since March 2016. It is a blended strategy which is mainly sovereign bonds but is 15% invested in corporate and 20% in local currency. We are thinking of adding a corporate hard currency fund as a build- ing block. It is a larger market than EM
40 | portfolio institutional | June 2021 | issue 104
sovereigns at around $2trn (£1.4trn). We mainly invest for diversification and believe this seperate block has some inter- esting qualities to add, such as shorter duration in an increasing interest envi- ronment, spread pick-up and a large expo- sure to Asia, a region we are positive on.
What excites investors about emerging market debt? Matthew Murphy: Emerging markets are always exciting. There is always a good story and a disaster happening every year. Covid is still working its way through emerging markets. We have seen coun- tries issue substantial amounts of debt to give themselves a bridge to recovery and we have seen inflation pick up. Asset prices reflect that. We expect emerging market countries to get back on their growth trajectory, perhaps tak- ing the baton away from the US and UK. Then there is the macro environment, with the Fed sitting on its hands and the US
announcing a stimulation package. We expect that to wash up on the shores of EM soon. We are in recovery, but it always comes down to the individual countries. Some are doing the right things, Ukraine and Serbia come to mind. Then there are those doing the wrong things, like Brazil and India.
Did investors take advantage of the emerg- ing market bond sell-off in 2020 to pick up some bargains? Murphy: It was the buying opportunity of the decade. The last time we saw prices like that was in the financial crisis of 2008/09. We were fortunate that our colleagues in Singapore were the first to fully under- stand the threat Covid offered. So, in Feb- ruary we cut risk on the margin which gave us cash to buy some attractive paper at distressed prices through the backend of March and early April.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52
