Emerging markets are increasingly popular with bond investors. Due to the weaker dollar and uncertainty about US policy, bond investors are finding attractive alternatives in emerging market government bonds in local currencies. After all, the interest rate difference between developed and emerging markets is large. Michaël Vander Elst, Head of Emerging Markets, and Marc Leemans, Fund Manager Fixed Income at DPAM, mainly see opportunities in Central Europe and Latin America, and in the financial sector, telecom and companies that focus on sustainability.
Which regions are interesting?
Asia, traditionally a region with low volatility, is less attractive because its returns are well below those of the US. India is the exception: the rupee is undervalued, economic growth is robust and fiscal discipline is maintained. In addition, conversations between President Trump and Prime Minister Modi point to further tariff negotiations, which leaves the prospect of a future trade agreement in sight.
Which sectors offer opportunities?
Vander Elst and Leemans have a preference for the financial sectordue to its diverse business models and wide geographical spread. They mainly look at stable companies with a large international presence. Local banks that are part of an international group are also interesting, because they follow the governance standards of their parent company. Valuations remain attractive, especially at the lower levels of the capital structure.
In addition, telecom companies with a dominant market position and strong pricing power remain interesting to them. Some issuers offer subordinated instruments with an attractive additional return.