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Emerging market bonds have been given the cold shoulder by investors in wake of the Fed tapering back its bond purchases. But there are signs, following this years sell-off, that some emerging market bonds are now trading at good value.
“Emerging market assets have switched from ‘priced for perfection’ to value or even deep value,” Societe Generale told clients in a note, advising investors to start adding exposure, particularly in Asia.
This represents a major shift for SocGen, which declared “the EM party is over” back in March of 2011. The bank has raised the weight of emerging market equities and bonds in its multi-asset portfolio to 5 percent each from zero.
But investors need to be wary, not all emerging markets are the same. Marc Desmidt, head of alpha strategies for BlackRock Asia Pacific, told CNBC. “The story on emerging markets is to look beneath the generic asset class. “In our view, you’ve got to be able to differentiate”.
Desmidt noted that some countries, such as India and Indonesia, are making efforts to improve their economic standing and have relatively high savings rates compared with South Africa or Turkey.
And Barclays said “We are far from calling a broad-based recovery in emerging market assets,” adding ‘cheaper valuations, lighter positioning, higher emerging market policy rates and ongoing external adjustments argue against treating emerging market assets as a clear short.”
The bank said it sees opportunities for both long and short positions to play on different countries’ changing economic and political prospects.
So there are opportunities in emerging markets, but you need to be careful how you play them. A broad based emerging market ETF is probably not the answer. It would be more prudent to select a single county ETF like the WisdomTree Asia Local Debt Fund (ALD). Or leave it to the professionals and choose an actively managed fund like the EG Shares, TCW EM Short Term Investment Grade Bond ETF (SEMF).
Todays Other Top Stories
Gary Gordon: – 3 Reasons top earners should favor high-yield muni ETFs. – Many fear that rising interest rates will crush income-oriented portfolios. Get over it – that was last year’s news. In fact, the vast majority of high-yielding assets have been the best performers of 2014, including utility stocks, REITs as well as long-dated U.S. Treasuries.
Bloomberg: – Detroit water, sewer bonds downgraded deeper into junk. – Detroit’s water and sewer bonds were dropped five levels to CCC from BB- by Standard & Poor’s — its fifth-lowest grade — citing a possible default as the city goes through the largest U.S. municipal bankruptcy.
Bloomberg: – Scores of Puerto Rico trades below $100,000 canceled by dealers. – Scores of trades in bonds Puerto Rico issued this month have been canceled by dealers, including some that were under the $100,000 minimum transaction level stipulated in deal documents, data compiled by Bloomberg show.
Russell Investments: – How tax efficient is your municipal bond portfolio? – Investors typically think of municipal bond products as being tax-free. However, in many cases, that is not the reality. Although the interest income from municipal bonds is typically tax-free at the federal level, any price gains realized on buying and selling the bonds within the product can create a tax liability.
Morningstar: – Municipal Outlook: An appetite for risk amid low supply. – At a price, investors are still willing to take on municipal credit risk–even from some of the highest-profile and most fiscally distressed issuers.
Cate Long: – Is muniland doping the data? – Puerto Rico and New Jersey may have played with the numbers recently to put a better gloss on their weak finances. They seem to be “doping” the data.
AllianceBernstein: – Two things municipal bond investors can do today. – Municipal bonds have rallied in 2014, but low yields, memories of last year’s sell-off and the potential for higher rates ahead have many investors wondering how to maneuver. We have a couple of ideas.
LearnBonds: – Choosing between a bond and a dividend growth stock. – For investors, the building of a solid, diversified portfolio is all about choice. Types of choices range from the big picture kind, including the percentage of an overall portfolio pie that will be allocated to specific asset categories, as well as smaller picture choices including investment decisions between similar and not-so-similar securities. One of the major choices that an income investor may be considering today is the choice between a corporate bond and a dividend growth stock.
Business Recorder: – Treasuries yield curve flattens. – The U.S. Treasuries yield curve flattened on Monday, with long-dated debt prices gaining while intermediate-dated debt prices pared losses, before the US government sells $96 billion in new debt to investors nervous that the Federal Reserve may raise interest rates sooner than expected.
WSJ: – Short-dated Treasuries regain ground. – Short-dated Treasury bonds edged higher Tuesday as a round of mixed U.S. economic releases deflated concerns that the Federal Reserve could raise interest rates sooner than expected.
Reuters: – Corporate bond markets in EMEA and U.S. changed by financial crisis. – Non-financial corporate bonds now make up a much larger part of the overall larger universe of outstanding corporate bonds compared with before the financial crisis in both EMEA and the US, Fitch Ratings says in a new quarterly report.
David White: – Why and how to buy corporate bonds in a likely increasing interest rate environment. – How do you invest in bonds, if they are likely to lose value? One answer is to buy intermediate-term (3-10 years to maturity) corporate bonds.
Bloomberg: – MasterCard plans first bond sale ever with $1.5 billion offering. – MasterCard Inc. (MA), the second-largest U.S. payments network, is planning its first bond sale on record with a $1.5 billion issue.
Mitch DeVan: – High-yield closed-end bond funds are a great alternative to cash in a market correction. – As the first quarter of 2014 comes to a close, caution is the word for the markets as we enter the second quarter of 2014. The second quarter has been the worst-performing quarter for the US markets in three of the past four years.
Reuters: – More Stock- and bond-picking opportunities in emerging markets. – Fitch Ratings says that a less supportive technical and macroeconomic environment in emerging markets provide more opportunities for active stock and bond investors.
Kiplinger: – American launches an emerging markets fund. – Talk about contrarian. American, which rarely launches new funds, is stepping into an area that investors can’t run away from fast enough.
Millionaire Corner: – Affluent investors reconsider investment options amid market rebound. – Non-Millionaires, while reporting they plan to be more invested in the market in the coming month, do indicate more caution in their investing plans than their Millionaire counterparts.
ETF Trends: – Hedge against market turns with short-term bond ETFs. – Investors have used fixed-income assets and bond exchange traded funds to help cushion the shocks in the riskier equities market. However, as we look to a longer time horizon, the diversification effects of bonds begin to diminish.
About.com: – The story of PIMCO (and why you should pay attention). – Why is the legendary bond fund manager, Bill Gross, and his mutual fund company, PIMCO, in financial news lately? Why does it matter? Mutual funds, especially those that are actively-managed, are about more than just performance; they are about the manager(s), especially when the fund manager is a central figure of the mutual fund company.
ETF Trends: – Some ETF second acts are worth viewing. – Some investors that have been following the exchange traded funds business for a while are familiar with the term “me too ETF.” That is an ETF from one issuer that is younger than but bears a striking resemblance to another issuer’s product. Not to be confused with me too ETFs are ETF sequels, or the scenario where a fund sponsor looks to capitalize on a concept that has proven successful with a similar but still noticeably different fund.
Retail brokers buying small pieces of PR, when (not if) the deal goes sour, will bitch about why they were allowed to buy in the 1st place.
— JD (@Munisrgood) March 26, 2014
— Brian Chappatta (@BChappatta) March 26, 2014
good 5yr auction
— Hello, Janet. (@cr3dit) March 26, 2014