While previous EIE events held this spring show appetite for emerging market investments is generally on the rise, the French stand out in their enthusiasm for emerging market debt (emd). Some 57% of fund selectors attending Expert Investor France plan to increase their allocation to emerging market corporate bonds in the next twelve months. Like in most other European countries, appetite for emerging market government bonds is less pronounced, with 38% of French fund buyers indicating they will increase their exposure.
Best bond option
Still this number is considerably higher than the amount of fund buyers increasing exposure to developed market bonds. And for good reason, according to Helene Willamson, head of emerging market debt for First State Investments.
“It’s hard to argue there is a bubble in emerging market debt. We have sold off so much last year that historically the risk premium is very high, at least compared to 2006 or 2007. US investment grade and high yield prices are at historical highs for example. Emd is quite far away from these levels,” she said.
“There are a number of risks in fixed income, including a full slowdown in China for emd, but the emerging market asset universe has cheapened significantly, so emd looks comparatively cheap,” Aberdeen’s fixed income specialist David Lloyd-Nolan added.
Iain Cunningham, manager of the Schroders Global Multi-Asset Income Fund, came to the assistance of the two emerging markets advocates: “We are allocated meaningfully towards emd. There is some relative value there, so we will be holding these positions.”
Europe still tops for equities
There was no emerging markets equity manager around to make the case for this asset class. But according to Andrew Jones, manager of the Henderson Horizon Global Equity Fund, it’s yet too early to significantly increase exposure to the region anyway. “In our portfolios we have got more of a skew towards Europe. In the emerging markets equity valuations have come down, but we still struggle with the valuations of some of the companies there.”
Some 44% percent of French fund selectors say they will increase exposure to EM equities in the coming year, up from only 19% in January. Still, EU equities are considerably more popular, with 56% stepping up allocation.