Brett Diment was speaking at his company’s emerging market debt seminar where he said such debt is attractive to mainstream investors. It is a more robust asset class had improved credit quality and higher issuance. However, success in this type of investment requires “diligent on-the-ground research”.
Wide universe
The emerging market debt investment universe was very wide stretching from Argentina to the Ivory Coast to Poland, he said. Investment prospects should be viewed against the severity of the recession in the developed world and the fact that structural debt problems do not exist in emerging markets. Furthermore, the former eastern bloc countries were used to fiscal austerity.
“We do not expect any sovereign debt defaults this year unless there is a significant fall in the price of oil,” Diment said. He was particularly keen on Mexican corporates and cited Homex, the largest homebuilder in that country, for its good margins and low leverage ratios.
Other countries he favoured were Indonesia, Hungary and Poland. But it is not all good news in the sector. Turkey, for example, was a place to avoid with its all-time low interest rates and high inflation risks. However, Turkey’s neighbour Greece “is going to be fine”.
Food price inflation is a key investment consideration for Diment as it is such a high proportion of expenditure in emerging markets.
The dollar’s fall from grace
On the topic of the dollar’s fall from grace, Diment said the dollar was still the reserve currency of the world and the “US remains important as it still sets monetary policy for most of Asia”.
An emerging market is a low or middle income country as rated by the World Bank. There are up to 28 emerging markets, depending on whose view you take, with the economies of China and India being the largest.
