He sees prospects in euro denominated EM bonds as well as EM corporate high yield bonds which have lower default rates than US high yield bonds. “There are a number of arbitrage opportunities that now exist in external debt, including about 100bps of free spread due to the greater diversification of the index following the doubling of the number of issuers over the past decade,” he adds.
In terms of countries, Pablo Goldberg, managing director, portfolio manager and senior strategist for Blackrock’s emerging market debt team, is looking at China where growth is decelerating but still growing at a good pace reinforcing the case for a soft landing. Russia, Colombia, Indonesia and Brazil are also on the list due to improving fundamentals.
For those looking farther afield, Hedi Ben Mlouka, CEO & CIO at Frontier Investment Management believes Pakistan, Egypt and the Philippines have a number of positive drivers in play. Take Pakistan, he notes that the International Monetary Fund (IMF) programme focused on energy and fiscal reforms coupled with a $46bn infrastructure-focused investment programme by China, have set the tone for far reaching structural reforms and infrastructure development “that will drastically revitalise the economic landscape”.
This has already translated into rising GDP growth, receding inflation, growing foreign reserves and declining fiscal deficit.
A recently negotiated three-year $12bn IMF loan programme should also pave the way for better fortunes in Egypt. He expects it to lead to “a more flexible exchange rate which in turn should help in unlocking additional sources of funding including international debt, foreign portfolio inflows and Gulf aid”.
He adds: “We believe an IMF loan deal will underpin much needed reform and trigger a normalisation in system FX liquidity.”
