- Advertisement -

Related

Kames warns of risks from ‘overbought’ EM debt

- Advertisement -

London – Investors need to treat emerging market debt with caution following a strong period of performance in 2016, with the more hawkish tone now emanating from the US Federal Reserve a potential threat, Kames Capital’s Scott Fleming (pictured) has warned.

Emerging market debt has delivered double-digit returns year to date, with the JP Morgan Emerging Market Bond Index Global Diversified returning 14.2%.

Such eye-catching gains – ahead of many types of fixed income, as well as other asset classes – have prompted increased interest from investors, with emerging market debt seeing 11 consecutive weeks of inflows. However, risks are now emerging which threaten returns, according to Kames.

Fleming, manager of the Kames Emerging Market Bond Fund, said this shift in the Federal Reserve’s stance – and recovering US inflation data – are a rising threat to the sector.

“A recent shift to a more hawkish tilt by the Fed, coupled with an upward trajectory for core Personal Consumption Expenditures (PCE) inflation, are early warning signs for emerging markets,” he said. “Both represent rising threats to the sustainable nature of the performance of the higher yielding portion of emerging market bonds in particular, where spreads reflect levels which are currently ‘overbought’.”

As well as a potential threat from shifts in central bank policy, Fleming added there were a number of other risks for the sector.

He noted banks in some emerging markets had issues with an increase in the number of non-performing loans, while there is also a risk that growth expectations may not prove to be all that sustainable.

Subscribe to HedgeBrev, HedgeNordic’s weekly newsletter, and never miss the latest news!

Our newsletter is sent once a week, every Friday.

Latest Articles

Simplicity Completes Norron Deal

Three months after announcing the deal, Swedish asset manager Simplicity has completed its acquisition of Norron’s fund management business, taking over the management of...

Rethinking the 60/40 Portfolio

The 60/40 portfolio remains one of investing’s most recognizable conventions, even where few institutional portfolios literally consist of 60 percent equities and 40 percent...

Diversification That Comes From Somewhere Else

Insurance-linked investments offer something increasingly difficult to find in institutional portfolios: return drivers that are fundamentally different from those behind equities and bonds. At...

Reinforce, Don’t Replace: Carrying the 60/40 Through the Fragile Decade

By Steven Braun at Newfound Research and Return Stacked® Portfolio Solutions: Despite its ambiguous origins, the 60/40 remains the default portfolio for investors approaching...

Varma: Practical Considerations for Embracing a Total Portfolio View

Finland’s Varma is one of several large Nordic asset owners that has been moving towards a more holistic view of the portfolio – some...

Thinking Outside the 60/40 Box: How Active and Dynamic Commodities Can Complement Bonds

Bonds helped investors to diversify equity between about 2000 and 2021, which more than covers the entire career of many allocators. Since 2022 bonds...

Allocator Interviews

- Advertisement -

Voices

Request for Proposal

- Advertisement -