LONDON (Reuters) – - Emerging debt is the top 2013 pick for BNP Paribas Investment Partners, which is cautious on all other asset classes including equities, citing policy uncertainty in the United States and Europe, CIO William de Vijlder said on Monday.
De Vijlder, who oversees 500 billion euros, said he was overweight emerging debt, and sovereign and corporate debt, but neutral on global equities, where gains could be limited by the U.S. fiscal cliff and the euro debt crisis among other factors.
LONDON, Nov 23 (Reuters) – In an era where sovereign debt
distress has become commonplace, this week’s ruling on
Argentina’s protracted bond restructuring just made the outlook
more complicated for creditors and debtors alike.
The ruling by U.S. Federal judge Thomas Griesa has raised
the spectre of a technical default next month by Argentina,
which has been ordered to immediately make full payment to funds
that had shunned its past debt restructuring rounds.
LONDON (Reuters) – Fears of a looming default on Argentine bonds are sending all but the bravest investors to the exits after a U.S. judge ruled against the country’s government in a decade-old dispute over sovereign debt.
Argentine spreads on JP Morgan’s EMBI Global sovereign bond index blew out 55 basis points on Thursday to yield 12 percentage points above underlying U.S. Treasuries, heading for a level hit last month that was the widest in three years.
Global Investing has commented before on how strongly the world’s riskiest bonds — from the so-called frontier markets such as Mongolia, Nigeria and Guatemala — have performed. NEXGEM, the frontier component of the bond index family run by JP Morgan, is on track to outperform all other fixed income classes this year with returns of over 20 percent., the bank tells clients in a note today. Just to compare, broader emerging dollar bonds on the EMBI Global index have returned some 16 percent year-to-date while local currency emerging debt is up 13 percent.
That appetite for the sector is strong was proven by a September Eurobond from Zambia that was 15 times subscribed. Demand shows no sign of flagging despite a default in frontier peer Belize and shenanigans over the payment of Ivory Coast’s missed coupons from last year. Reasons are easy to find. First, the yield. The average yield on the NEXGEM is roughly 6.5 percent compared with just under 5 percent on the EMBIG.
Moody’s disappointed a lot of folks this week when it failed to raise Turkey’s credit rating to investment grade.
After Fitch upped Turkey on Nov 5 into the coveted top tier, hopes were high that Moody’s would do the same and soon. Being rated investment grade by at least two agencies has a lot of pluses . But all the subsequent investment inflows have side effects and one of them is currency appreciation. Check out these graphs. (click to enlarge)
LONDON, Nov 21 (Reuters) – Be careful what you wish for.
Turkey’s long-awaited restoration to investment grade has
the potential to turn into a policy headache for authorities
trying to prevent foreign capital from inflating the lira’s
The sovereign was upgraded by Fitch Ratings earlier this
month after being classed as a speculative buy for 18 years. If
Moody’s also elevates the country to the lower-risk ratings
category as expected, its debt will be eligible for inclusion in
mainstream global bond indices – setting the stage for big-money
investment funds to take a slice.
This week’s interest rate meetings in the developing world are highlighting that despite slower economic growth, inflation remains a problem for many countries. In some cases it could constrain policymakers from cutting interest rates, or least from cutting as much as they would like.
Take Turkey. Its central bank surprised some on Tuesday by only cutting the upper end of its overnight interest rate corridor: many had interpreted recent comments by Governor Erdem Basci as a sign the lower end, the overnight borrowing rate, would also be cut. That’s because the central bank is increasingly concerned about the lira, which has appreciated more than 7 percent this year in real terms. But the bank contented itself by warning markets that more cuts could be made to different policy rates if needed (read: if the lira rises much more).
Rate decisions last week in emerging markets well anticipated this week’s crop of economic data.
Russia for instance not only kept rates on hold last Friday (after raising them at its previous meeting) but struck a less hawkish tone than expected. Voila, data this week showed growth in the third quarter was 2.9 percent compared to 4 percent in April-June.
All eyes on Poland’s central bank this week to see if it will finally join the monetary easing trend underway in emerging markets. Chances are it will, with analysts polled by Reuters unanimous in predicting a 25 basis point rate cut when the central bank meets on Wednesday. Data has been weak of late and signs are Poland will struggle even to achieve 2 percent GDP growth in 2013.
How far Polish rates will fall during this cycle is another matter altogether. Markets are betting on 100 basis points over the next 6 months but central bank board members will probably be cautious. Inflation is one reason along with the the danger of excessive zloty weakness that could hit holders of foreign currency mortgages. One source close the bank tells Reuters that 75 or even 50 bps would be appropriate, while another said:
Is there a change of sector leadership underway within emerging markets?
For years, commodities and energy delivered world-beating returns to emerging market investors. Yet in recent years there are signs of a shift, says Todd Henry, equity portfolio specialist at T.Rowe Price.
With the China tailwind no longer as strong as before demand for oil and metals will not be as robust as in the past decade, Henry says. But in China as well as elsewhere, disposable incomes have risen as a result of the fast economic growth these countries experienced in the past decade.