GLOBAL - Swiss asset manager Pictet remains bullish on emerging market debt despite recent evidence suggesting that investors are withdrawing from the asset class.
Recent research from EmergingPortfolio.com Fund Research (EPFR) revealed that investors pulled US$1.8m from emerging market bond funds last week - the first time since the start of the year - signalling that the market may be cooling down.
But Pictet predicts that emerging debt yields are still likely to outweigh those from their industrialised counterparts at this point.
An economic upswing in Latin America is also supporting current prices, said Dominique Audin, senior investment manager for emerging market debt at Pictet.
“Interest rates are at 20 year lows and, coupled with a soft global economic outlook, high yield in emerging market debt are attractive,” he added.
“Emerging market debt can capitalise on good liquidity, since the emerging debt world comprises relatively few, large issues.”
The total market has market cap of around US$1.6trn, according to Pictet, or 5% of the total bond market.
Augin is positive on Brazil and believes that the worse is now over for Argentina where debt is trading at around 30%. Brighter prospects in Argentina are also expected to support Uruguay’s debt as the latter’s economy is heavily dependent on Argentina.
But Brad Durham, managing director of fund research at EPFR, thinks that Brazilian bonds, in particular, have surrendered their sharp gains on the year, possibly marking an outflow period.
However, he believes that recent leakages are no reason for investors to retreat and that prospects remain good in the medium term.
“One of the main justifications for increasing exposure to emerging market bonds is the liquidity. As more funds flow in it will continue to support higher asset values regardless of what the fundamentals are.”
The end of the Iraq war has also brought a boost for Asian stocks.
Asian emerging markets have been handed “much needed relief” following the conclusion of the war in Iraq, a leading fund manager claims.
Emerging markets specialist Franklin Templeton Investments said stocks have been “beaten down to attractive levels”.
Portfolio manager Mark Mobius said stocks in south east Asia and the Korean peninsula have been oversold due to poor market sentiment rather than weak fundamentals.
He said: “We will look for firms trading below their intrinsic value, allowing us to build positions cheaply.”
Mobius expects the Chinese economy to continue to strengthen over the long-term despite SARS. He also forecast a continuation of regional tensions over North Korea’s nuclear weapons programme.
He added: “In the long-term, we believe continued proactive involvement by the government could lead to greater investor confidence in South Korean companies.”
The Next Generation Pensions Committee is on a mission to promote and encourage younger voices in the industry. Kim Kaveh looks at its key objectives
This week's top stories included an analysis finding the cost of equalising guaranteed minimum pensions in schemes could hit FTSE 100 profits by up to £15bn.
Employers whose dividend to deficit recovery contribution (DRCs) ratios fall outside the "normal range" should expect to see higher regulatory scrutiny, although no fixed ratio will be set.
Investment consultants and fiduciary managers should expect a final decision on the investigation into the market to be published by the end of the year, the competition watchdog says.