Latin American debt offers minimised credit risk and more attractive valuations than Asian debt, acc...
Latin American debt offers minimised credit risk and more attractive valuations than Asian debt, according to Ece Ugurtas, director of fixed interest at M&G.
On a macro perspective it has been a good year overall for emerging markets, Ugurtas says.
She adds: "Latin America has benefited the most as oil prices have been strong and are allowing for fiscal and external surpluses."
There is little oil production in Asia and credit is already expensive, leaving very little value, she says.
Paul Murray John, emerging markets fund manager at Threadneedle, agrees: "Asian debt has performed so well in the past that yield levels have fallen and it is now unattractive to emerging market fund managers."
Murray John notes that Mexico has been a star performer in the region but there is doubt over Argentina. He says: "There is concern over Argentina's ability to sustain debt in the weak market. The country has gone to the IMS and is negotiating for a loan of $20-25bn. Mexico has been insulated from this. The new president and party are market-friendly and on the path of economic reform. Subsequently, Mexico has outperformed."
Moody's upgraded Mexico to investment grade this year, and Standard & Poor's is expected to follow suit, Ugurtas says. She adds that record numbers of countries have been upgraded recently, which should continue as long as fiscal policies are improving.
However, within Latin America there is the risk of a Mexico slowdown, due to its strong trade links with the US, Simon Lue-Fong, portfolio manager at Invesco says.
Although, he says, a US slowdown is likely to hit Asia doubly hard, as it already has a slowing economy and export trades.
Asian countries need to let currencies depreciate, in order to support the slowdown, Lue-Fong says, adding: "Korea is on a floating exchange rate, so will be able to weaken its currency."
Murray John says: "The only Asian exposure we have is to the Philippines. It has been rocky due to political situations and the impeachment of the president, but the appeal of a very high yield remains. We are not exposed to Korea or Thailand."
Ugurtas remains positive on Latin American debt. She says: "Asia debt does not have any value left. Latin America is offering attractive valuations and has a good credit history. There have only been 13 defaults since World War II, which is less than in the US. It is in the countries best interest to pay off national debt as they need access to capital markets."
Ugurtas likes Venezuela and believes its fiscal accounts should improve, as the oil prices are high, the economy is fairing well and the president is liked. She adds: "Venezuela has an Oil Stabilisation Fund, into which surplus money from oil is transferred. There is $3.5bn in the fund, so it has a cushion that would service three years of debt."
M&G are overweight Latin America bonds and favours holdings in countries such as Brazil, Argentina, Mexico, Venezuela and Columbia, Ugurtas says.
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