Emerging market bond prices
Local currency emerging market debt has had a strong start to the year returning over 8% in dollar terms. This strong performance has been in line with a general pick up in risk appetite this year as the liquidity benefits of “operation twist” in the United States and the long-term refinancing operations (LTRO) in Europe feed through into higher global asset prices.
A large percentage of the strong returns from this asset class have been generated by foreign exchange appreciation. We believe that this is going to be an ongoing theme throughout 2012 as we feel many emerging market currencies remain undervalued. By contrast bond yields, although still generous in comparison with developed markets, are historically low on both a real and absolute basis. At these levels we feel that yields are particularly vulnerable to any upward surprise to growth and inflation forecasts in a number of markets.
Correlations have been fairly high year to date but we expect these to break down as the year progresses and investors more closely differentiate between country specific stories and fundamentals. We continue to prefer Latin America and Asia over Eastern Europe on a regional basis.
Although returns were disappointing in March we remain positive on the outlook for the asset class over the remainder of this year. We believe that with a few exceptions in peripheral Europe, artificial stimulus in the Western world will continue to place downward pressure on long dated bonds yields. This ongoing state of excessive liquidity will ensure that emerging market debt yields remain attractive. We caution that in some emerging markets bond yields are low on a historical basis in both real and absolute terms and could be subject to a heavy sell-off if global liquidity conditions change. It therefore remains crucial to invest only in those markets that offer value relative to the underlying fundamentals of each specific country.
Bonds: The Unbeaten Path to Secure Investment Growth (Bloomberg)
Book (Bloomberg Press)
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Soros has slammed US Treasury Secretary Hank Pau2008-09-17 12:45:33 by MasterOFDisaster
Billionaire investor George Soros has slammed US Treasury Secretary Hank Paulson for behaving in the same manner as bankers in the 1930s and mishandling a financial crisis that threatens a repeat of the Great Depression.
Soros told BBC Newsnight that the world was merely at the beginning of a financial storm and warned, We mustnt allow the financial system to collapse as it did in the 1930s.
Referring to Hank Paulson, the US Treasury Secretary, Soros stated, The way Paulson is handling the situation is reminiscent of the way the bankers handled it in the 1930s.
He added: The financial system has gone overboard and the financial engineering has grown to big, it takes up too big a share in the worlds resources.
Now it is shrinking. When it becomes...
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