Tags: Neuberger | Pimco | Emerging-Market | Selloff

Neuberger Joins Pimco in Seeing Value in Emerging-Market Selloff

Tuesday, 20 August 2013 08:14 AM

The worst emerging-market debt selloff in more than a decade is leading fund managers to favor the securities on prospects growth will pick up in the second half as the global economy recovers.

Neuberger Berman Group LLC prefers local-currency bonds as developing nations take a “mostly neutral to accommodative” monetary-policy stance, limiting the risk of higher U.S. rates, according to an Aug. 19 press statement from the New York-based company overseeing $214 billion. Pacific Investment Management Co., owner of the world’s biggest bond fund, sees value in the yield premium on the notes, an Aug. 14 research report shows.

“We believe that investors have made too much of slowing growth in emerging markets,” Rob Drijkoningen, co-head of the developing-nation bond team in the Hague at Neuberger Berman, said in the statement. “Emerging-market debt should continue to benefit from the long-term trend of inflows, as fixed-income investors add exposure to emerging markets, which are structurally underrepresented in their portfolios.”

Dollar-denominated bonds in developing countries’ posted a 0.8 percent loss since the end of June, after declining 6.1 percent in the second quarter, which was the worst performance since Russia’s debt default in 1998, according to JPMorgan Chase & Co.’s EMBI Global Index.

Local-currency notes fell 2.5 percent this quarter in dollar terms, extending a 7 percent drop in the previous three months, the biggest since September 2011, the GBI-EM Global Diversified Index shows.

‘Structural Case’

“From a fundamental point of view, we see value in the higher yields available on many EM bonds, both in local currency and U.S. dollars,” Ramin Toloui, the Singapore-based co-head of emerging markets at Pimco, wrote in the research note last week. It didn’t provide details on specific markets.

A global economic recovery and stronger growth from China in the second half of the year will be supportive for emerging debt markets, according to a separate report from Neuberger Berman posted on its website and dated August.

Economic growth in developing countries will probably accelerate “modestly” to 5.3 percent for all of 2013, after expanding 4.8 percent in the first half, and gather pace to 6.1 percent in 2014, Neuberger said in the report. After a disappointing first six months, China could grow 7.6 percent this year, accompanied by a series of reform measures as its new government settles in, according to the report.

In Europe, the Middle East and Africa, Neuberger favors the currencies of Israel, Czech Republic, Hungary, Nigeria and Russia, as opposed to those in Turkey, South Africa and Poland.

“We believe the structural case for emerging-market debt remains strong, as investors increasingly recognize the economic significance, improved credit quality and depth of EM economies and markets,” Gorky Urquieta, Atlanta-based co-head of the emerging-market debt team, said in the Aug. 19 press statement.

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The worst emerging-market debt sell-off in more than a decade is leading fund managers to favor the securities on prospects growth will pick up in the second half as the global economy recovers.
Tuesday, 20 August 2013 08:14 AM
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