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Cross-border trade will boost EMD, says Investec bond manager

Cross-border trade will boost EMD, says Investec bond manager

Cross-border trading between emerging market companies is an increasingly important trend investors need to tap into.

That is the view of Victoria Harling, Citywire + rated manager within the emerging market debt team at Investec.

Harling, who co-runs the Investec GSF Emerging Markets Corporate Debt fund alongside unit head Peter Eerdmans, pointed to South African media company Naspers as a prime example.

Naspers has taken a stake in Chinese media giant Tencent Holdings, which has shown increasingly inter-linked stories of the emerging market nations.

'Globalisation is one of the key things for emerging markets corporates in the future,’ said the London-based manager.

Harling added that commodities, infrastructure and food producers from Latin America have also been looking forward to expanding their businesses in Asia in the long run.

'I'd say even if you look at those companies in Latin America, such as those iron producers and beef producers, they export their products to China. There is always a lot of analysis on corporates where those products are going.' 

EM to outperform DM

Over the next 12 months, Harling believes emerging markets corporate debt will outperform developed markets in a rising interest rates environment.

'We think that emerging markets’ corporates offer a bigger spread versus developed markets corporates, and we think structurally that spread is too generous,' said Harling, who added the current yield on emerging markets corporates is around 5.2%.  

Additionally, Harling said investors have been trying to diversify out of developed market credit into emerging market corporate debt in recent months.

Favouring China and Indonesia

Harling said her fund tend to focus on China (12.7%) and Indonesia (3.5%) in Asia as of August 31, 2014. Despite the slowing down in real estate sector in China, Harling still remains positive on the sector. 'The business is still growing even though margins have been coming down,' said Harling.

Elsewhere, Harling is also expecting to buy into consumer recovery story. 'We look for consumer business in China. Right now the sector has been going through a little bit of a weaker path, so we’re waiting for a turnaround before adding to the consumer sector.'

Harling has been focusing on utility businesses in Indonesia, and is also looking for new issuance to emerge in the country.  'The problem is lots of those companies are smaller companies, so we'd like to see some bigger companies issuing bonds,' said Harling.

Even though the manager agrees that India's position is generally positive, she would not get involved in India (2.8%) as much as she was previously. 'It's hard to say how much further the spreads can be tightened in many of the Indian corporates.’

Over the three years to the end of August 2014, Investec GSF Emerging Markets Corporate Debt Fund has risen 29.14% in USD term, while its Citywire benchmark, BofA Merrill Lynch EM Corporate Plus TR, rose 27.11%.

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