“Avoiding big underperformance defaults remains critical but devaluations have improved a little bit from last year.
“In terms of the currency valuations, they have improved. Some of the countries, such as South Africa, have hiked rates, because of the pace of inflation there.”
“If you look at the risk premium, it is more attractive than where we were at the beginning of last year. I do not want to put a number in terms of expected returns but I think if you do the right homework, the asset classes are OK.”
The biggest binary outcome
As for any particular market or issuer that she thinks has the potential to shine this year, Calich predicts that the biggest binary outcome is Venezuela because its bonds are still in the low 30s.
“It is either going to be the best performer or the worst performer. So far Venezuela has paid, the 2016 to February maturity got paid. The biggest pile of maturities is going to be at the end of the year and I have to say that I do not have a high conviction.
“I would say it is 50/50 or 60/40 that Venezuela does not pay, just because the financing gap is huge. You are talking more than $30bn, which Venezuela absolutely does not have, but can it come up with some creative mechanism at the end of the year?”
Meanwhile, Brazil remains critical, she adds, because its economy is still on a recessionary and political crossroads.
“There have been no really major policy announcements to offset the bad cycle that the country is in, so corporates especially have been pretty much decimated.
“Some of them are even restructuring but others are still trading, and if you pick a couple of the right ones, they could be also a big driver.”
She further cites Argentina, one of the best performers last year, as an interesting market to watch going forward, too, especially at the end of the year, with the government elections.
Argentina is now able to start borrowing again, but that is the problem, according to Calich.
“It means $10bn or $15bn of bonds, and the market is worried about absorbing all this debt, but the outlook for the country is much more positive than it has been.”
