EmergingPortfolio.com: Tide turning for emerging markets bond funds
September 7, 2004
Dedicated emerging markets bond funds posted net inflows for the fourth week running as fears about the pace and scope of US interest rate hikes continue to moderate.The 249 funds tracked by Boston-based Emerging Portfolio Fund Research (EPFR) have taken in $235.6 million over the past four weeks.
When combined with five straight weeks of positive performance, their total assets under management have nudged up to $16.74 billion. These recent trends stand in sharp contrast to the period between April 7 and August 4, when the funds posted net outflows 15 out of 17 weeks as investors pulled out $1.22 billion. Overall, however, the funds have posted collective net inflows of $428 million since the beginning of the year.
Events in the US continue to be the biggest driver of this asset class. Expectations that US interest rates could reach 4% by year’s end have recently given way to predictions of two more 0.25% hikes and a 1.75% base rate going into 2005. As a result, the higher returns offered by emerging markets debt have regained some of their luster - especially since the underlying fundamentals in many key markets are positive.
Among the markets that are attracting attention and money are Brazil (recovery picking up steam), Turkey (supportive review by the IMF), Venezuela (oil revenues) and the Philippines (new government). This interest is reflected in the average weightings of EPFR-tracked funds. Venezuela’s weighting is currently 6.1% compared to 3.6% in August, 2003, while Brazil’s weighting climbed from 16.8% in July to 18.1% as of August.
The rally is still being held back by reservations about Russia, where the government’s prosecution of Yukos continues to highlight the risk that comes with investing in emerging markets. Russia’s average weighting in EPFR-tracked funds is currently 13.9%, down from 17.2% at the beginning of last year. Russian fundamentals, however, remain sound and several fund managers expect that issues later this year will get a favorable reception.
Going forward, several large issues are expected to hit the market in the next two months, among them sovereign issues from Brazil, Mexico, China, Colombia Turkey and the Philippines and corporate issues from Russia, Thailand and Brazil.
September 7, 2004
Dedicated emerging markets bond funds posted net inflows for the fourth week running as fears about the pace and scope of US interest rate hikes continue to moderate.The 249 funds tracked by Boston-based Emerging Portfolio Fund Research (EPFR) have taken in $235.6 million over the past four weeks.
When combined with five straight weeks of positive performance, their total assets under management have nudged up to $16.74 billion. These recent trends stand in sharp contrast to the period between April 7 and August 4, when the funds posted net outflows 15 out of 17 weeks as investors pulled out $1.22 billion. Overall, however, the funds have posted collective net inflows of $428 million since the beginning of the year.
Events in the US continue to be the biggest driver of this asset class. Expectations that US interest rates could reach 4% by year’s end have recently given way to predictions of two more 0.25% hikes and a 1.75% base rate going into 2005. As a result, the higher returns offered by emerging markets debt have regained some of their luster - especially since the underlying fundamentals in many key markets are positive.
Among the markets that are attracting attention and money are Brazil (recovery picking up steam), Turkey (supportive review by the IMF), Venezuela (oil revenues) and the Philippines (new government). This interest is reflected in the average weightings of EPFR-tracked funds. Venezuela’s weighting is currently 6.1% compared to 3.6% in August, 2003, while Brazil’s weighting climbed from 16.8% in July to 18.1% as of August.
The rally is still being held back by reservations about Russia, where the government’s prosecution of Yukos continues to highlight the risk that comes with investing in emerging markets. Russia’s average weighting in EPFR-tracked funds is currently 13.9%, down from 17.2% at the beginning of last year. Russian fundamentals, however, remain sound and several fund managers expect that issues later this year will get a favorable reception.
Going forward, several large issues are expected to hit the market in the next two months, among them sovereign issues from Brazil, Mexico, China, Colombia Turkey and the Philippines and corporate issues from Russia, Thailand and Brazil.
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