If emerging market bonds sell-off, it’s probably a knee-jerk reaction to a headline and therefore a great buying opportunity, says HSBC head of emerging markets research, Murat Ulgen.
“We expect emerging market financial assets, in particular local markets fixed income and equity, to continue doing well in the coming months,” Ulgen wrote in a note to clients dated May 24.
Global growth and reduced risks regarding protectionism are particularly positive for emerging markets, though there will be individual countries that face serious political headwinds.
Although not mentioned in the report, countries like Brazil and Mexico face potential political problems, with Brazil being the worse of the two. Mexicans head to the polls next summer. This June, an election in Mexico state, home to Mexico City, may see a populist win that sets the stage for a populist president in 2018.
The crux of the report is how European growth and recovery is good news for emerging markets.
“Given that the E.U. is the largest trade partner and source of capital, a strengthening euro…would give another boost to emerging markets,” Ulgen wrote.
Capital flows to emerging markets remain strong, based on EPFR Global fund tracking data from last week. Around $58 billion of fresh money has piled into the asset class this year as of mid-May, according to HSBC.
The U.S. is facing potential delays in passing fiscal reforms, which could soften inflation expectations and keep the 10-year Treasury yield, and dollar, relatively range bound. A weaker dollar tends to mean stronger emerging market currencies. Investors who buy emerging market local debt when the currency is weak are looking to get an extra bounce from the investment when the currency becomes stronger. We may be in that sweet spot now for some countries. Brazil is a particular stand out, with more rate cuts expected in the months ahead and a recent political headline causing some pain in currency markets.
The risks? A more hawkish Fed, a weaker-than-expected Europe and credit woes in China are the main external hurdles for this asset class. HSBC: Buy Emerging Market Fixed Income
If emerging market bonds sell-off, it’s probably a knee-jerk reaction to a headline and therefore a great buying opportunity, says HSBC head of emerging markets research, Murat Ulgen.
“We expect emerging market financial assets, in particular local markets fixed income and equity, to continue doing well in the coming months,” Ulgen wrote in a note to clients dated May 24.
Global growth and reduced risks regarding protectionism are particularly positive for emerging markets, though there will be individual countries that face serious political headwinds.
Although not mentioned in the report, countries like Brazil and Mexico face potential political problems, with Brazil being the worse of the two. Mexicans head to the polls next summer. This June, an election in Mexico state, home to Mexico City, may see a populist win that sets the stage for a populist president in 2018.
The crux of the report is how European growth and recovery is good news for emerging markets.
“Given that the E.U. is the largest trade partner and source of capital, a strengthening euro…would give another boost to emerging markets,” Ulgen wrote.
Capital flows to emerging markets remain strong, based on EPFR Global fund tracking data from last week. Around $58 billion of fresh money has piled into the asset class this year as of mid-May, according to HSBC.
The U.S. is facing potential delays in passing fiscal reforms, which could soften inflation expectations and keep the 10-year Treasury yield, and dollar, relatively range bound. A weaker dollar tends to mean stronger emerging market currencies. Investors who buy emerging market local debt when the currency is weak are looking to get an extra bounce from the investment when the currency becomes stronger. We may be in that sweet spot now for some countries. Brazil is a particular stand out, with more rate cuts expected in the months ahead and a recent political headline causing some pain in currency markets.
The risks? A more hawkish Fed, a weaker-than-expected Europe and credit woes in China are the main external hurdles for this asset class.