Pages

EM Recommendations

- "So far in 2010, the emerging markets have done very well. The benchmarks for both hard- (EMBI) and local-currency bonds (GBI) posted positive returns; EMBI and GBI posted returns of 3.55% and 17.64% during the first four months of the year. We are still bullish about the asset class for the period ahead, but we admit that the ongoing turmoil in relation to Greece and the Exchange Rate Mechanism constitutes a risk for the Central and Eastern European countries in particular. So far, the emerging markets are relatively isolated from the Greek problems, since the public debt and budget deficit of the EM countries are generally much lower. There-fore, the EM countries are not as vulnerable as the PIIGS countries (Portugal, Ireland, Italy, Greece and Spain). In the short term, there is a risk, however, the Central and Eastern Europe will underperform the other EM re-gions due to a higher sensitivity to the euro-zone problems. Provided that the cooperation be-tween Greece and the EU/IMF functions smoothly, we see no reason to reduce exposure to EM bonds. How-ever, investors who overweight Central and Eastern Europe may consider reducing their exposure to the bene-fit of other EM regions. The Greek tragedy is not the only risk factor for the emerging markets. Investors should take into account the many elections in the emerging markets, the possibility of further intervention in the market (like the 2% tax in Brazil and Colombia selling the peso) and the exit strategies from the very relaxed fiscal- and monetary policies pursued around the globe. This publication gives you an overview of our recom-mendations for local-currency bonds."
JyskeBank EM Recommendations 20100702

No comments:

Post a Comment