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Global affairs matter to EM debt indices but our investment process is designed to identify the specific performance drivers of each local rate curve and currency. We aim to maximise exposure to the country- specific risk drivers rather than to global macro risks.
In HC, we prefer to retain exposure to countries or companies with improving fundamentals such as Angola and Egypt and oil and gas companies in Brazil and Kazakhstan. We also favour issuers with positive technicals, such as promotion to the index for Bahrain and Qatar, two energy-rich countries - or to cheap names trading as distressed credits, such as Argentina or Tajikistan.
Tactically underweight Turkey After taking profits in a number of Sub-Saharan African countries (Angola, Gabon, Kenya and Nigeria) following their impressive performance in the first half of 2019, we await eurobond issuance to add to positions again.
We retain an underweight in Turkey until the government produces a more credible bank recapitalisa- tion plan and until political risk around local elections in Istanbul and the purchase of a missile defence system from Russia subsides.
In local currency, we prefer to retain exposure to rates versus currencies and prefer bond markets that offer high risk premiums versus US treasuries, have inflation under control and follow credible and inde- pendent central banks. Indonesia, Mexico, Peru and South Africa are four examples.
We need to confirm that the US dollar is on the wane before engaging with EM currencies. We do not favour markets in Central and Eastern Europe where we note resurfacing inflation and central banks that have failed to acknowledge the risks of overheating.
EM debt – investing responsibly Candriam has been managing EM debt for 20 years, one of the longest track records in this asset class. We also have two decades of expertise in ESG investing and integrate ESG considerations into all our investments.
In our EM debt strategies, ESG factors account for 50% of the overall creditworthiness of a country based on what tells us of a country’s medium-term structural reform and momentum as well as the qual- ity and effectiveness of institutions competitiveness.
For any further information, please contact Fawzy Salarbux, global head of consultant relations, at
fawzy.salarbux@
candriam.com.
This document is provided for information purposes only. The information, opinions, analysis and views expressed in this document are provided for information purposes only, it does not constitute an offer to buy or sell financial instruments, nor does it represent an investment recommendation or confirm any kind of transaction. Although Candriam selects carefully the data and sources within this document, errors or omissions cannot be excluded a priori. Candriam cannot be held liable for any direct or indirect losses as a result of the use of this document. Past performances of a given financial instrument or index or an investment service, or simulations of past performances, or forecasts of future performances are not reliable indicators of future performances. Gross performances may be impacted by commissions, fees and other expenses. Performances expressed in a currency other than that of the investor’s country of residence are subject to exchange rate fluctuations, with a negative or positive impact on gains.
June–July 2019 portfolio institutional roundtable: Emerging market debt 23
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