‘Rwanda pays us steadily as it re­cov­ers from war’

The Daily Telegraph - Your Money - - FRONT PAGE -

Trade ten­sion be­tween China and Amer­ica and a cur­rency cri­sis in Turkey are threat­en­ing to in­crease volatil­ity in emerg­ing mar­kets, leav­ing some in­vestors ner­vous. Emerg­ing mar­kets are less pre­dictable than de­vel­oped economies, cre­at­ing op­por­tu­ni­ties for ac­tive man­agers who aren’t shy of a down­turn.

One such man­ager, Clau­dia Calich, runs M&G’s £950m Emerg­ing Mar­kets Bond fund, which is in­cluded in the “Tele­graph In­come 10”, a list of our favourite high-yield­ing funds.

Ms Calich finds value in coun­tries she ex­pects to grow eco­nom­i­cally and whose credit rat­ings are lower and bond yields more at­trac­tive. She spoke to Tele­graph Money about where she saw value and how she han­dled cor­rup­tion. ar­eas may of­fer huge di­ver­si­fi­ca­tion; for ex­am­ple, in­vest­ing in Venezuela is a dif­fer­ent story from in­vest­ing in Colom­bia. There are stark dif­fer­ences in the qual­ity of gov­ern­ment or cor­po­rate bonds in coun­tries that may look sim­i­lar from the out­side.

We as­sess global growth, com­modi­ties, in­fla­tion, mon­e­tary pol­icy, the price of the Amer­i­can dol­lar – any key drivers that would af­fect emerg­ing mar­kets in ei­ther a pos­i­tive or neg­a­tive way. Then we look at coun­tries them­selves. If a state looks healthy and it doesn’t look like there will be a cri­sis we will in­vest, and we could con­sider cor­po­rate bonds as well as gov­ern­ment.

“Top-down” drivers will al­ways come out on top. In other words, we could be in­vest­ing in a bond of the best com­pany in the world, but if there is a wider cri­sis or period of in­sta­bil­ity in that coun­try, the com­pany will in­evitably suf­fer.

Clau­dia Calich of M&G tells Harry Bren­nan about in­vest­ing in the world’s more volatile economies

Ms Calich has more than 20 years of ex­pe­ri­ence of in­vest­ing in emerg­ing mar­kets. She pre­vi­ously worked at In­vestec be­fore Rarely. We will some­times do it if we think that the mar­ket is mis­pric­ing the even­tu­al­ity of a sce­nario that could dis­turb things.

There are a num­ber of ways we can do this: we can sim­ply choose not to in­vest there, short sell [bet against] the cur­rency, or en­ter into a credit de­fault swap [a form of in­sur­ance on a bond] that will pay out if things go down­hill.

Dur­ing the Peru­vian gen­eral elec­tion in 2016 I thought the mar­ket was un­der­es­ti­mat­ing the prob­a­bil­ity of a more pop­ulist can­di­date mak­ing it through to the sec­ond round. I bought pro­tec­tion through credit de­fault swaps and shorted the cur­rency. The bet didn’t come off in that case and I quickly closed my po­si­tion. If we have con­cerns or think the risks are not priced into the mar­ket or the bonds, we can sit down with the is­suers and put ques­tions to them. If they are be­ing eva­sive or not giv­ing us the full pic­ture, we can’t un­der­stand what is go­ing on in that coun­try or in that com­pany so we won’t in­vest.

Take Mozam­bique – we didn’t in­vest there be­cause we had con­cerns about trans­parency. It turned out we were right when it was dis­cov­ered that the coun­try’s debt lev­els were a lot worse than the gov­ern­ment was let­ting on.

At the mo­ment we are in­vest­ing in smaller economies such as Ivory Coast, An­gola, Sene­gal, Nige­ria, Uruguay and Rwanda. For the most part they are ben­e­fit­ing from re­cov­er­ing growth where the cur­rency has pre­vi­ously


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