GLOBAL - Institutional investors have been raising allocations to emerging market debt over the last 18 months.
Pension funds have been the main contributors, with allocations starting from near zero. Emerging markets specialist Ashmore Investment Management, which has raised over US$600m in Q1 2003, expects the trend to continue over the next five years.
Jerome Booth, head of research, said: “The motivation for the allocations is that G7 equities are in a secular bear market and G7 sovereign bonds offer insufficient returns to meet target return criteria.
“The US equity rally leading up to war allowed institutional investors locked into equities to sell some at higher levels, and this enables greater flows into EM debt. Further volatility in US/G7 equities can be expected to release similar new flows into EM debt.”
Booth added how, unlike in other sectors, war in Iraq has not had a negative impact on emerging market debt outside of Turkey. Brazil has rallied strongly and Russia, despite being hit by a near US$10 fall in oil price, has seen bond prices and the rouble rise during March.
Credit Suisse Asset Management is also bullish on Russia, claiming the outlook remains positive as investment risk reduces.
Neil Gregson, global equity portfolio manager at CSAM, believes that there is still value in Russian oil stocks as well as wireless service providers.
CSAM also maintains a positive stance on European accession states, adding that Poland, Hungary and the Czech Republic are nearly played out in debt markets but lagging somewhat in equities.
Growth within Turkey can potentially equal Russia with opportunities at a stock level.
Gregson said: “There are numerous opportunities in emerging Europe as earnings continue to rise and valuations represent excellent value relative to other markets around the world.
“However, because of our positive view for the region as a whole we are practically neutral at a country asset allocation level while we wait for certain issues, such as geopolitical problems, to pass before we make further calls.
“The reason we are not overweight Russia is more because the country now comprises some 50% of the benchmark and we feel it is important to have further country diversification.”
The Howden Group Pension Plan has completed a full pensioner buy-in with Legal & General (L&G), insuring benefits for around 2,000 members.
Professional Pensions is looking to update its list of pensions master trusts in the UK ahead of authorisation. Can you help?
Concern about the potential impact on employer covenants has been rated the top risk for defined benefit (DB) schemes, according to a PTL survey.
Jonathan Stapleton says the DWP's progress on CDC is a welcome, and cautious, step forward.