Five post-crash bets for the road ahead
25 Aug 15
Industry experts come together and select their best investment calls for the post-crash environment.
Emerging market debt
Though emerging market debt has seen significant outflows as of recent, Dehn believes that while redemption volumes are big enough to take note of, they are not a reason to ignore the asset class.
“At between $183bn and $295bn, depending on the methodology used, EM capital outflows are still large, but they are by no means catastrophic,” he argued.
“They measure between 0.6% and 0.9% of total tradable debt and equity in EM. Alternatively, rather than being more than twice the size of outflows recorded during 2008/09, the outflows are in fact significantly smaller – perhaps as low as half that size.
“Our estimates of the scale of outflows also have the merit of being far more consistent with the price action. In 2008/09, sovereign debt spreads in EM blew out to 800 basis points – today, spreads are around 400 basis points. Local bond yields in EM blew out to more than 9.5% in 2008 – now yields are about 7%, and still below levels seen during the Taper Tantrum.
Willis added: “We tend to use strategic managers in fixed income. High yield was starting to look more attractive, but has sold off very aggressively in the last couple of weeks. We have some emerging market debt exposure which has held up pretty well, and it is interesting how it has fared compared to equities. It has been a lot less volatile, which has not been the case in previous EM crises, so it offers some yield for us.
Funds owned: (Willis) Ashmore Emerging Markets Debt, GF Global Strategic Bond Fund
Tags: Bonds | China | Investment Strategy
