Emerging bonds, how to choose dollar issues with rich coupons and low risks

The weak dollar and increasingly low US government bond yields should create opportunities for investment in bonds (sovereign and corporate) of emerging countries denominated in a strong currency, such as the US. If many issues are investment grade (i.e., they have a relatively low risk of default according to rating agencies), interest in this asset class continues to attract investors (small and large) looking for geographical diversification. Opportunities, however, must always be accompanied (as always when it comes to investments) by a clear perception of risks: the main one remains that of US rates. But let's proceed in order.

In developed countries, coupons are generally declining, while in emerging countries the combination of high yields and improving macroeconomic fundamentals make these bonds 'attractive'. In fact, from a macro perspective, emerging economies show still solid growth, gradually declining inflation and consolidating public budgets. Rating agencies are also reporting an increasing number of upgrades compared to downgrades, confirming a qualitative improvement in structural conditions.

A decisive role is played by the dynamics of the US economy. The slowdown in the labour market, the deceleration of wages and the (so far limited) impact of trade tariffs point to below-trend US growth, without, however, entering recession. This has a twofold effect: on the one hand, the Fed has room to cut rates; on the other, the lower relative attractiveness of US equities pushes international investors to seek yield, precisely, in the foreign currency debt of emerging markets. In short, an overall encouraging picture.

Fin qui le opportunità. «Il principale rischio - avverte Gian Marco Salcioli, strategist Assiom Forex - resta quello dei tassi: un inatteso aumento dell’inflazione negli Stati Uniti e la conseguente risalita delle curve dei Treasury potrebbe ampliare rapidamente gli spread. Non solo. Esiste il rischio di cambio, sia diretto (nella posizione in dollari di un investitore in euro), sia implicito (anche se i bond sono denominati in dollari, il debito viene onorato in valuta locale, e un forte deprezzamento può rendere più oneroso il servizio del debito, tanto per uno Stato sovrano quanto per un’azienda). Tra i rischi - continua Salcioli - bisogna ricordare anche l’instabilità politica e le tensioni geopolitiche in alcune aree (dal Medio Oriente all’America Latina) e la liquidità che è inferiore rispetto ai mercati sviluppati (nelle fasi di stress, i prezzi possono subire oscillazioni significative). Le aspettative di mercato sul dollaro - conclude Salcioli - indicano una possibile ulteriore svaluta

many emerging economies," recalls Christian Zorico, portfolio manager and head of fixed-income strategies at Frame Am, "have developed so much over the past 10 to 15 years that together they now account for half of global gross domestic product and in Purchasing power parity (PPP) terms for about 60 per cent of the aggregate. Including local currency and hard currency issues, we are looking at a market of more than USD 27 trillion. If we compare the extra yield offered against economic fundamentals, emerging debt in dollars and its risk/return profile represent more than an investment niche. The asset class is rightly becoming a key component of a diversified fixed-income strategy with a long-term horizon.