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In emerging markets, the bulls are back again

Sven
in Fund Discussions
Renew interest in emerging market stocks and debts.
A "bullish" Morgan Stanley expects a near 17% return on EM local currency debt. Credit Suisse "particularly" likes hard currency debt, while BofA's latest global fund manager survey shows "long EM" is the top "contrarian" trade.

"It's a kind of a wholesale de-grossing of risk," said T. Rowe Price EM portfolio manager Samy Muaddi, who has started dipping his toe back into what he describes as "well-anchored" EM countries such as Dominican Republic, Ivory Coast and Morocco.

"Now, I feel the price is sufficiently attractive to warrant a contrarian view".
https://reuters.com/markets/emerging-markets-bulls-are-back-again-2022-11-23/

Comments

  • CrashCrash
    paywall. but i get the point. Here's one I follow.

    Note SEC Yield at over 21%. Holy jaymuk.
    https://investor.morningstar.com/quotes/0P000102MI
  • CrashCrash
    Still holding my junk bonds.
  • Sven
    edited November 2022
    Try this for the text:
    https://fidelity.com/news/article/top-news/202211230959RTRSNEWSCOMBINED_KBN2SD11Z-OUSBS_1?print=true

    Be sure that you consider the total return of emerging market debts, not just the yields alone. The EM bond prices get crushed as their yields rise. A minus 20% down for this year will take more than one year to fully recover. I learned my lesson in 2008 and it took over 4-5 years to recover. Talking about opportunity cost when the market came back strongly after 2008 when you are still holding 80 cents on a dollar of investment.
  • yogibearbullyogibearbull
    For deeply discounted bonds, the 30-day SEC yield assumes par at maturity (ignoring default risks), so be cautious.
    https://ybbpersonalfinance.proboards.com/post/705/thread
  • Sven
    edited November 2022
    assumes par at maturity (ignoring default risks), so be cautious.
    Exactly! There is also the sovereignty risk. Case in point that Russian bonds became worthless as they were mark-to-market and underwent free fall early this year. Those EM bond funds were down over 20%.
  • carew388carew388
    If I decide to play this trend I'll stick to EMB or FNMIX -hard currency funds that I can trade without transaction fees ! I don't have the expertise to deal with local-currency EM debt funds.
  • CrashCrash
    carew388 said:

    If I decide to play this trend I'll stick to EMB or FNMIX -hard currency funds that I can trade without transaction fees ! I don't have the expertise to deal with local-currency EM debt funds.

    Yes, I would not want to go there, either. DOLLAR bonds for ME.
  • CrashCrash
    Thanks for that link, @sven.
  • Observant1
    edited November 2022
    I've owned several multi-sector funds and a global bond CEF (GIM, large EM allocation) in the past.
    However, I generally invest in bonds/bond funds to stabilize my portfolio.
    If I was inclined to purchase EM debt for part of my portfolio, it would replace equities dollar for dollar.
  • carew388carew388
    +1
  • yogibearbullyogibearbull
    edited November 2022
    For lower-quality HY/EM bond funds with high 30-day SEC yields, watch for deteriorating fund NAVs. That may be for 2 reasons:
    1. Some holdings defaulted,
    2. Premium bonds used to juice up distributions (beware of current-income vs total-return objective).
  • CrashCrash
    gotcha, yogi. If I stick with my fav. junk bond fund for, ... let's say 39 years, maybe the ups and downs will even-out?
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