Daily Management Review

Hedge funds bet on emerging markets


03/20/2017


The world's largest publicly traded hedge fund, Man Group, prefers bonds denominated in local currencies instead of bonds in sound currency. Local bonds in 2017 are providing a yield twice as high as that of the dollar bonds of developed countries, according to Bloomberg Barclays indices.



tradergroup.org
tradergroup.org
Local bonds have been bringing losses to investors during three previous years.

"As for the hard currency, we believe that there is a lot of complacency," notes Lisa Chua, portfolio manager of Man GLG, a division of the London-based Man Group.

In the medium term, it is more appropriate to invest in bonds denominated in local currencies, the expert believes.

Man Group joined BNP Paribas Investment Partners and private division JPMorgan Chase & Co., which adhere to the "bullish" position on bonds in local currencies. According to EPFR Global, investors this year have invested $ 4.5 billion in domestic debt, despite the prospects for tightening monetary policy in the US and protectionist rhetoric of Donald Trump.

According to Goldman Sachs Group’s survey, foreign funds have significantly increased their investments in Brazil and Russia bonds over the past six months, and are gradually increasing their investments in bonds of Indonesia.

Analysts forecast profits for more than half of the currencies of developing countries, tracked by Bloomberg, by the end of this year. At the same time, the maximum profit is expected to come from bonds denominated in Argentine pesos, Turkish lira and Indonesian rupiah, followed by Czech koruna and the Russian ruble.

BNP Paribas Investment Partners also expects the dollar to fall against most of emerging-market currencies in 2017.

The US Federal Reserve raised the federal funds rate by 0.25 percentage points to 0.75-1% last week. The regulator plans to raise the rate two more times this year and three times in 2018 in accordance with the December forecasts.

"Raising the Fed rate has already been taken into account, so there is no additional incentive to strengthen the dollar, and the currencies of developing countries look very cheap at the moment," said Jean-Charles Sambor, deputy head of fixed income instruments in emerging markets at BNP Paribas Investment Partners. - The trend of the dollar's growth, observed in the last couple of years, may have ended at the end of 2016 ".

Among bonds of Asian countries, BNP Paribas Investment Partners prefers sovereign bonds of Indonesia and India, as well as papers of Russia. According to Sambor, the Brazilian real and the Mexican peso will continue to strengthen, which in the long term will cause inflow of funds to the markets of these countries.

According to JPMorgan, the placement of bonds by companies from emerging markets exceeded $ 75 billion on March 8. In February, the figure reached $ 33 billion against the average monthly value of $ 20 billion in the past few years, the bank said.

Placements by sovereign issuers reached $ 38.5 billion, according to JPMorgan. Argentina and Turkey issued bonds for $ 7 billion and $ 3 billion, respectively. In total, the figure was already about half of the JPM's forecast for sovereign bond placement for 2017.

According to Thomson Reuters, by March 10, the bond markets in hard currencies had $ 137 billion occupied, of which $ 91 billion fell on companies.

Data on the volume of placements may vary depending on source of information and on which countries are classified as developing.

source: bloomberg.com






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