EM top of the class despite Ukraine turmoil
By Sudip Roy
LONDON, March 7 (IFR) - Emerging markets hard currency debt was the best performing fixed-income asset class in February in spite of growing political tensions in several countries, most notably Ukraine and Russia.
While the headlines in recent weeks have been anything but positive, investors are buying the asset class, spurred by relatively cheap valuations. Institutional investors, in particular, are back bidding for assets, in contrast to retail investors that continue to exit emerging markets bond funds.
The latest data from EPFR Global shows that retail accounts have withdrawn USD3.44bn from hard currency emerging markets bond funds this year, and more than USD7bn from local currency accounts.
"Yet despite the outflows, performance in EM FX, credit and local bonds has been anything but weak over the past two to three weeks, despite the developing crisis in Ukraine," said Demetrios Efstathiou, head of CEEMEA strategy at Standard Bank.
"Outflows ought to have caused further weakness and a continuation of the bear market, but they haven't. I think that this is because EM FX, rates and credit have become cheap enough to attract interest from non-dedicated EM investors," he added.
In February the JP Morgan EMBI Global index - which measures the performance of dollar-denominated emerging markets sovereigns - tightened by almost 60bp from a spread of 397bp to 340bp. On Friday it was trading at 336bp.
On a total return basis, the index generated a return of 3.22% last month. Meanwhile, JP Morgan's CEMBI Broad Diversified index, which measures the performance of hard currency corporate bonds, produced a return of 1.70%.
"Despite all [the problems in Ukraine], emerging market hard currency debt was the best performing fixed income asset class during the month of February," said Chris Iggo, CIO, fixed income, at Axa Investment Managers. Continuación...