[ I N D E P T H | E M E R G I N G M A R K E T S ]
there is clearly more value in emerging markets in terms of real yields , so the timing is probably right for an improvement in sentiment at least , and maybe for some funds to flow back into emerging markets fixed income .”
Since last year EM fixed income was expected to do well however , currently market changes are yet to pass .
“ There ' s a structural case for emerging markets and it ’ s set to remain a core part of the fixed income opportunity set .”
JOHN ESPINOSA , HEAD OF SOVEREIGNS AND PORTFOLIO MANAGER FOR NUVEEN ’ S GLOBAL
FIXED INCOME TEAM
Geoff Yu , senior EMEA market strategist at BNY , explains that though the iFlow data showed that in Q1 some of the best performing regions were in frontier markets as investors rewarded reform intent , overall , despite a positive future outlook , [ EM ] hasn ’ t done as well as predicted .
“ It ’ s fair to call it lacklustre […] the reason ultimately is because dollar rates are still quite high and then see if they come down and we don ' t see US yields coming down aggressively yet for example ,” he says .
However , firms are continuing to gear up for future flows into the area despite slow developments , recognising the consequences of not harnessing the potential of EM bonds and biding time for what many believe is the inevitable .
“ Looking at the second half of the year , emerging markets stand to do very well , especially those without direct exposure to US politics or global politics in general [...] the bottom line is we need to see a clear trigger , and then on a risk adjusted basis , the EM fixed income sphere should be one of the best-positioned asset classes for the second half of the year and beyond ,” says Yu .
Diversify to liquify There are undeniable , established upsides of this asset class which investors are keen to capitalise on once the market is primed . One of the key ways that emerging market fixed income is poised to become an increasingly essential part of investment portfolios going forward is of course for diversification purposes .
“ The significance of EM cannot be understated , especially as the macro backdrop continues to improve ,” asserts Burke . “ The rise of capital flows from the Middle East are one example of the growing importance of EM , and as these markets grow , they will continue to allow greater diversification of EM portfolios .”
Not only is the asset class a highly efficient way of broadening scope , but emerging market bonds have also historically offered higher yields than developed markets and as such can help reduce the overall volatility of a portfolio – an increasingly important factor given the current state of play .
Speaking to the key advantages , Sambor explains : “ We believe it is a particularly good fit for active investors with a contrarian slant . EM investment styles and processes are becoming increasingly bifurcated between large passive or quasi-passive investors and very nimble ones that can exploit a volatile environment and sudden changes in flows or investor asset allocations .”
Moreover , there is no looking back when it comes to emerging markets being increasingly integrated into the global economy and the continued promises of more aligned international
“ Now , there is clearly more value in emerging markets in terms of real yields .”
NIELS NOOY , EM EXECUTION SPECIALIST AT LIQUIDNET
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