Ironically, the previous rounds of sanctions forced Russia to become less dependent on international investors, which improved the way it managed its books. Not to forget that we have oil prices running 30% up this year, still slightly lower than a year ago but there are reasons to believe that around $70 (£56) per barrel is okay for the Russian economy and is going to be sustainable for a while. The key question with Russia is whether there will be further sanctions and further tensions in Ukraine. Collins: Looking at client portfolios, it is difficult to identify persistent country positioning, but Ukraine and Argentina are countries where people are generally positive. You can play the Turkey story either short term or long term. As the yield moves, some people will decide it’s worth it while some will prefer to stay away. African and frontier countries are coming in more and more. People are gravitating away from Asia, which tends to have lower yields. The technology/China connection is strong there, so if there’s a problem it might be the worst area to be affected.


PI: Is political risk being priced in? Collins: It is reasonably priced. It will always be a little bit binary in some cases but, barring the situations that become outliers, countries tend to get through these things. Developed market countries are not free of political risk either and, arguably, it’s much less priced-in there. You could say the overall yields are fair value for the level of risk and uncertainty. Take Ukraine, some of the more unpalatable outcomes were never removed but they didn’t come out of the elections. Clearly, you have to manage that risk, it doesn’t go away, and you may well be paid for it, particularly if you can manage it and clearly identify the different situations with a degree of accuracy. Deltcheva: We have put Russia aside. The risk premium is low relative to the elevated political/sanc- tions risks. There are four bills in the US congress and if one becomes a reality there is a huge risk of a significant re-pricing of Russian assets


When Russia went to war with Ukraine, its central bank had to use reserves to relieve the pressure on its currency. It also had to allow sovereign bonds to be used as collateral, so a lot of outstanding bonds are now in Russia’s central bank’s coffers. This is a specific technical issue that is not obvious in other markets.


Duncan Willsher: Out of curiosity, has there been a time in the recent past where we haven’t been cautiously optimistic? Mordezki: Many times. In 2015 when commodi- ties were plunging everybody was writing about it being the end of the emerging market debt story, but four years later we are still discussing it as an opportunity. Willsher: As an investor with a diverse portfolio, I struggle to get excited about emerging market debt given the volatility and the other opportuni- ties that are out there. On the way here I read vari- ous outlooks for 2018 and, in retrospect, some of them look quite silly. It feels like there’s always a nice growth story about emerging markets, people are invariably aware of the risks and are cautiously optimistic, but in reality what happens after that is a bit of a free-for-all. Trow: The backdrop again is the monetary cycle, if you are looking at it generally. We have had a 10- year bull market since it all went pear-shaped in the financial crisis. Over that period people’s default


10 June–July 2019 portfolio institutional roundtable: Emerging market debt


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