Opportunities in Asian market bonds
Brazil is also attractive due to high real yields, although fiscal uncertainty could create short-term volatility
3' min read
Key points
3' min read
Anthony Kettle, senior portfolio manager emerging market debt at Rbc BlueBay explains the opportunities, but also the unknowns, to be found in emerging market debt.
What is your view on emerging markets today, in light of the global macro environment and central bank decisions?
Overall, we see a favourable environment for emerging markets, but investors should remain selective given the wide range of opportunities. Emerging markets are benefiting from favourable factors such as the weak US dollar trend that looks set to last in the medium term, the start of a monetary easing cycle in developed markets and an environment where developed markets are in a below-trend expansion phase while many emerging markets are showing resilience, benefiting from the early start of a tightening monetary cycle. Valuations remain cheap in the context of the significant US dollar strength seen in 2022-2023 (now reversing), as well as high levels of real interest rates. In the credit market, we consider yield levels to be reasonably attractive overall, despite tight spreads. In light of an outlook for defaults that is currently positive after the recent cycle of defaults, we prefer a selective approach to investing in high-yield bonds, while remaining aware of the continued risks from external vulnerabilities and geopolitical shocks.
Which countries or geographic areas offer the best opportunities in emerging debt?
Asia is one of the main beneficiaries of the current hedging dynamic against the dollar. In Latin America, Mexico stands out for its alignment with US nearshoring trends, supported by solid macroeconomic fundamentals and still high real rates. Brazil also offers opportunities due to high real yields, although fiscal uncertainty could create short-term volatility. In the world of hard currencies, with relatively low default risk and US dollar yields continuing to offer high carry, emerging market credit remains one of the most attractive sectors for selective alpha generation.
How do you manage risk in portfolios in an environment of high volatility and geopolitical uncertainty?
