Emerging Market Bonds: Why JP Morgan and Amundi Are Fleeing Asian Markets 3

Amundi does not find Asian bonds attractive

Emerging market (EEM) (EMB) fund managers are increasingly fleeing Asian bonds and piling into Latin America (ILF) and Turkey (TUR) local currency debt (EMLC) (LEMB). Abbas Renani, global emerging markets strategist at Amundi Asset Management, does not find Asian bonds attractive currently. He prefers Latin America and Turkey bonds.

The yield difference is huge

Data reveals that the yield difference is substantial in some cases. Turkey’s 10-year benchmark bond is currently offering a 10.37% (as of May 15). From Latin America; Brazil’s (EWZ) is at 10.08% and Mexico (EWW) at 7.2% and Colombia (ICOL) at 6.3%. On the other hand, 10-year bonds of popular Asian markets (AAXJ) such as China (FXI), Thailand (THD), South Korea (EWY), and Malaysia (EWM) are offering 3.7%, 2.5%, 2.3%, and 3.9%, respectively. Moreover, China’s debt situation continues to pose a tail risk to Asia.

Exceptions within Asia: India & Indonesia

“In Asia, the only currencies that we do like are India (EPI) and Indonesia (EIDO),” said Renani. “We want to allocate to countries with the highest opportunities, not just countries with good opportunities.”

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India’s 10-year sovereign bond is currently trading at a 6.8% yield. Indonesia’s is at 7.1%. From a currency perspective, India and Indonesia present an opportunity for bond (BND) (AGG) investors. So far in 2017, the Indian rupee and the Indonesian rupiah have been appreciating against the greenback. The Indian rupee has strengthened by about 6% against the US dollar (UUP) (between Jan 2 through May 15), while the Indonesian rupiah has strengthened by 1.65% during the same period. Strengthening currency presents an opportunity for foreign portfolio investors to gain exposure to local debt.

JP Morgan’s Amoa shares the same view

Diana Kiluta Amoa, senior portfolio manager on the local-currency team at JPMorgan (JPM) Asset Management, also likes emerging market local–currency bonds as they’re currently relatively inexpensive considering a weaker dollar. Among emerging markets, Amoa is particularly bullish on Argentina (ARGT), Mexico (EWW), Brazil (EWZ), and Turkey (TUR). Again we see a tilt towards Latin America (ILF) and Turkey from yet another prominent fund manager here.

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