Noel Collins


“Developed market countries are not free of political risk either and, arguably, it’s much less priced-in there.” Noel Collins, Mercer


Companies can compare local and international markets more efficiently than they could have 15 years ago. They are able to tap the less expensive one and then hedge into their desired currency exposure. Deltcheva: Active managers don’t invest only in benchmark emerging market debt local currency assets and we have developed specific processes that manage currency and interest rate risks. Currency risk is managed actively, but it is extremely challenging because macro-economic models do not work as well as they have done in the past. Collins: For local currency debt, FX volatility is an inherent part of the risk profile. It has twice the volatility of hard currency debt, so if you don’t have tolerance for that you could hedge the FX, but that tends to be expensive. So you could simply go for hard currency. You are going to have to hedge high yield as well as a global loan portfolio, which are US-heavy asset classes. You could have emerging market debt without direct FX exposure. Clearly, there would be stuff going on underneath because every country will be impacted in terms of their ability to repay debt and by how their currencies behave. In terms of accessing the class, you can hold hard currency and not have day- to-day local currency exposure but it comes at a price of a lower-yield outcome when you hedge it back to your base currency.


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


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