‘Brazil could be a big win­ner un­der Trump’

The Daily Telegraph - Your Money - - INVESTING FUND OF THE WEEK -

Don­ald Trump’s im­pend­ing pres­i­dency in Amer­ica has cre­ated fears that emerg­ing mar­kets could be hit. The con­cern is that Mr Trump’s pro­tec­tion­ist mea­sures could harm trade be­tween the United States and other na­tions.

Gov­ern­ment and cor­po­rate bonds is­sued in de­vel­op­ing coun­tries have be­come cheaper, caus­ing their yields to rise and mak­ing them more at­trac­tive to in­come-seek­ers.

M&G Emerg­ing Mar­kets Bond is one fund in­vest­ing in the debt of these less de­vel­oped na­tions.

The fund can in­vest in bonds is­sued by gov­ern­ments and com­pa­nies, and in for­eign cur­rency and var­i­ous other com­pli­cated strate­gies that profit when the mar­ket falls. It cur­rently yields 4.8pc.

Tele­graph Money spoke to man­ager Clau­dia Calich about the coun­tries that are poised to rise and her prof­itable Ukraine hol­i­day in the re­cent cri­sis.

What is your process?

We start by look­ing at emerg­ing and de­vel­oped mar­ket trends, at growth, pol­i­tics, cen­tral bank poli­cies, com­mod­ity prices and in­fla­tion. This dic­tates whether the fund will be riskier or more de­fen­sive.

The split be­tween bonds priced in dol­lars and bonds priced in lo­cal cur­ren­cies is de­cided at the be­gin­ning too.

Then we fil­ter for in­di­vid­ual coun­tries based on val­u­a­tions, eco­nomic trends, po­lit­i­cal move­ments and debt lev­els.

If we think the coun­try is not go­ing to im­plode then we can also in­vest in cor­po­rate bonds, is­sued by com­pa­nies.

Do you see big­ger op­por­tu­ni­ties in gov­ern­ment or cor­po­rate bonds?

I have slowly re­duced the cor­po­rate bond ex­po­sure from 60pc three years ago to 30pc now.

We find ar­eas of the cor­po­rate mar­ket, such as high-qual­ity Chi­nese com­pa­nies, ex­pen­sive.

Some ar­eas have also be­come dif­fi­cult to an­a­lyse, such as in Brazil, where a num­ber of com­pa­nies have been in­volved in scan­dals.

How would the re­turn of in­fla­tion and ris­ing in­ter­est rates af­fect emerg­ing mar­kets?

One ef­fect that’s more pos­i­tive is the re­bound in com­mod­ity prices, which is good for many African na­tions and some in Latin Amer­ica.

The neg­a­tive comes from in­ter­est rates. US gov­ern­ment bonds are pric­ing in higher in­fla­tion, in ex­pec­ta­tion of a big fis­cal stim­u­lus from Mr Trump.

This is neg­a­tive for coun­tries or com­pa­nies with higher dol­lar bor­row­ing, as they will pay more to re­fi­nance.

In 2016, Brazil was the best emerg­ing mar­ket bond per­former and Mex­ico the worst. What does 2017 hold?

When the ben­e­fits of glob­al­i­sa­tion are ques­tioned, Brazil could be a big win­ner as it’s a rel­a­tively closed econ­omy, al­though much of that ad­van­tage is priced in al­ready.

Mex­ico is the op­po­site to Brazil – it’s not easy to change the struc­ture of an open, glob­ally de­pen­dent econ­omy.

How­ever, the Mex­i­can peso is cheap, and the coun­try is re­gain­ing mar­ket share from China.

We bought the Mex­i­can peso af­ter the elec­tion, de­spite the chal­lenges. We had none be­fore­hand, as the mar­ket was too op­ti­mistic Mr Trump would lose. I was more cau­tious.

Are emerg­ing mar­ket bonds risky fol­low­ing the elec­tion of a new US pres­i­dent, asks James Con­ning­ton

What was your best and worst in­vest­ment?

The big­gest win was a few years ago dur­ing the ten­sions be­tween Ukraine and Rus­sia. Ukraine’s cur­rency was col­laps­ing, and debt lev­els were very high.

I went to Kiev on hol­i­day and took a day of meet­ings. The bonds looked very cheap, so I bought gov­ern­ment bonds and a cor­po­rate bond. They more than dou­bled in value in six months, due to a debt re­struc­ture. It’s prob­a­bly the best trade of my ca­reer.

The worst was with an­other fund. I in­vested in Ecuado­rian gov­ern­ment bonds in 2007 and a new ad­min­is­tra­tion de­cided the is­sues were il­le­git­i­mate, ef­fec­tively de­fault­ing.

I learnt that it’s im­por­tant to dis­tin­guish be­tween abil­ity and will­ing­ness to pay in emerg­ing­mar­kets.

Do you have your own money in the fund?


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