Nyheter
Time to be Opportunistic in Emerging Markets Bonds
No matter one’s point of view, November was a watershed month for global financial markets. The immediate reaction for holders of emerging markets bonds was to sell first and ask questions later. This sell-then-ask process has been the fate of many risk markets over the past decade. For emerging markets bonds, it did not take long for prices to move significantly lower and then usher in the “ask questions” phase. The market reaction was swift, with higher rates and a stronger U.S. dollar. This continued after the Federal Reserve delivered an expected rate increase following their meeting on December 13-14, but with an unexpectedly hawkish forecast for 2017. Time to be Opportunistic in Emerging Markets Bonds
USD Strength Impacts Local Bonds
Hard currency sovereigns were negatively impacted by a 55 basis points (bps) increase in 10-year U.S. Treasury rates in November, ending the month with a return of -4.1%. Investment grade sovereigns were more impacted than the broader universe due to their longer duration. However, higher quality bonds now also provide an approximately 90 bps pickup versus U.S. investment grade corporate bonds, a significant increase in relative value versus October. High yield emerging markets corporate bonds posted a relatively modest negative return of -1.6% due to a shorter duration than other sectors, and remain a bright spot with year-to-date returns of 14.4%. These gains have been driven equally by the significant carry they provide, as well spreads which have tightened year to date (and which remained steady in November).
Extreme volatility in some emerging markets currencies impacted the local currency sovereign space, which declined 7%, with 5% attributable to currency depreciation and the remaining 2% from higher local rates. Within local currency bonds, Turkey and Mexico stood out as laggards in U.S. dollar terms due to the large selloff in their currencies. Although not immune to the broad weakness in emerging markets currencies, Russian and Colombian bonds were the best performers (although still negative for the month), with the former expected to be more insulated from Trump’s foreign policies, and the latter benefitting from a renewed peace deal with FARC (The Revolutionary Armed Forces of Colombia) and posting small positive returns in local terms. In addition, both Russia and Colombia rely heavily on commodity exports and their local bonds received some support from the increase in oil prices that resulted from OPEC’s (Organization of Petroleum Exporting Countries) announced production limits.
What’s Next for Emerging Markets?
The prevailing sentiment post-U.S. election is somewhat pessimistic for emerging markets. The consensus is that fiscal stimulus will more than make up for monetary tightening, spurring a reflationary trend that is likely to occur inside a newly formed bubble of protectionism that will leave many emerging markets without a key engine for growth. Another by-product is that populist/nationalist movements will succeed (as the rejection of the Italian referendum validated in early December) throughout the developed world over the next several years, significantly altering the geopolitical and economic landscape.
Our view is more nuanced. We believe the prospects for emerging markets in 2017 centers around a few critical questions. One: How will higher U.S. rates, should that trend continue, impact flows? Two: Will the U.S. dollar continue its upward trend on the back of higher rates and a wave of protectionism? And three: Can emerging markets growth continue to recover? Consensus is for growth to accelerate slightly in 2017, but sentiment also appears to be that a fiscally led pick-up in developed markets economies will happen largely in a vacuum as trade relationships are under threat. Given years of progress in the opening of global markets, this last assumption is a difficult one to digest, but it also means that the continued rise of the U.S. dollar is not a foregone conclusion.
Be Savvy and Opportunistic Amid the Volatility
Given the uncertainty in the market, economic and political developments (or even an off-the-cuff early morning tweet by President-elect Trump) are likely to keep volatility elevated in the near term.
We believe investors should keep two things in mind. First, the positive note is that from a static perspective, emerging markets fundamentals (growth, debt stock, real rates, and policy flexibility) remain at a favorable starting point relative to developed markets as we enter 2017. While current accounts are more of a mixed story, in many cases they have improved. On the other hand, the less positive note is that the range of potential outcomes in 2017 – for U.S. rates, growth and inflation, EU and Japanese monetary policy – is extraordinarily wide, with opposite or divergent outcomes possible depending on the course of events. While emerging markets assets can do better in 2017 than recent press and analyst coverage may suggest, we believe that being savvy and opportunistic (and contrarian) about adding exposure could help enhance the risk/reward.
November 2016 1-Month Total Returns by Country
(Click to enlarge)
Source: FactSet as of 11/30/2016. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.
Fran Rodilosso Head of Fixed Income ETF Portfolio Management
Portfolio Manager for Fixed Income ETFs
Oversees the Fixed Income ETF team; responsible for portfolio strategies, as well as credit and market analysis; specializes in international bond markets
Investment Management Team member since 2012
Prior to joining VanEck, Managing Director of Global Emerging Markets with The Seaport Group; launched the firm’s emerging markets fixed income sales and trading business
Previously held portfolio management positions at Greylock Capital and Soundbrook Capital; focused on corporate high-yield and distressed bonds with an emphasis on emerging markets
Earlier career experience includes senior fixed income trading positions at Credit Lyonnais and HSBC
Quoted in Financial Times, Barron’s, and ETF Trends, among others
CFA charterholder; member of New York Society of Security Analysts
MBA (with distinction), Finance, The Wharton School of Business, University of Pennsylvania; AB, History, Princeton University
The UK is shaking up crypto. This month, the Financial Conduct Authority (FCA) proposed lifting its ban on crypto exchange-traded notes for retail investors, a positive step in a global race to regulate digital assets and provide consumer protection.
Key metrics show Bitcoin’s rally isn’t over
Bitcoin is above $100K, and key indicators suggest a growing momentum and a potential for further upside. The Bitcoin Fear & Greed Index sits at 62, reflecting a sentiment that remains near neutral. This lack of extreme greed suggests that the rally may still have room to run in the near term.
Apple wants to enter Circle’s orbit. Why are stablecoins the tech world’s new darling?
Stablecoin issuer Circle made a blockbuster debut on the New York Stock Exchange earlier this month. Now, tech giants like Apple, Meta, and Google are reportedly exploring stablecoin integrations, marking another major step toward merging digital assets with mainstream technology.
Research Newsletter
Each week the 21Shares Research team will publish our data-driven insights into the crypto asset world through this newsletter. Please direct any comments, questions, and words of feedback to research@21shares.com
Disclaimer
The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.
SGS5 ETP spårar priset på silverterminer
GIGU ETF investerar aktivt i USD-denominerade företagsobligationer
UK looking to lift the retail ban on crypto ETPs
AMEM ETF, de ledande aktierna från tillväxtmarknaderna i en enda transaktion
21Shares noterarar fem nya krypto-ETPer Nasdaq Stockholm
Montrose befäster sin position som den populäraste ETFen
BNP Paribas Asset Management lanserar Europe Defense ETF
Global X noterar Europafokuserad försvarsfond
Kommer Nordea att lansera nya börshandlade fonder?
Nu introduceras fem nya europeiska börser på Nordnet – courtagefri handel under maj
-
Nyheter2 veckor sedanMontrose befäster sin position som den populäraste ETFen
-
Nyheter3 veckor sedanBNP Paribas Asset Management lanserar Europe Defense ETF
-
Nyheter4 veckor sedanGlobal X noterar Europafokuserad försvarsfond
-
Nyheter3 veckor sedanKommer Nordea att lansera nya börshandlade fonder?
-
Nyheter4 veckor sedanNu introduceras fem nya europeiska börser på Nordnet – courtagefri handel under maj
-
Nyheter3 veckor sedanBlackRock lanserar europeisk försvars-ETF för europeiska investerare
-
Nyheter3 veckor sedanYieldMax™ tillkännager första utdelningen för YYYY
-
Nyheter4 veckor sedanRivstart för Montrose ETF-satsning!
