Emerging-market investors shouldn’t expect a repeat of the 2013 taper tantrum as Treasury yields climb, JPMorgan Asset Management said.
Local-currency and dollar-bond indexes for developing nations fell the most since May on Friday as the highest 10-year Treasury yields in four years sparked a selloff in stock markets. While the Fed is poised to push on with rate hikes, the difference this time round is that it’s not just the U.S. that’s enjoying an economic revival.
“Synchronized global growth is always very good for emerging markets,” said Diana Amoa, who oversees a $2.9 billion emerging markets local currency bond fund at JPMorgan. “We have been expecting this and positioned our portfolios according to this. For us, it is a healthy repricing of yields in the U.S.”
Here are some trade ideas from Amoa, whose fund beat 94 percent of peers over the past year, according to data compiled by Bloomberg:
Rates Out of Sync
- “Fundamentally, when you look at US growth, core rates were particularly too low for what the U.S. economy was doing. This move is, for the most part, because of growth. And when you have growth in the U.S., it tends to benefit the rest of the world, particularly emerging markets.”
- “It’s not a taper-tantrum style event, when rates are moving simply because of technicals.”
- “We look for markets at a similar cycle as the U.S. Central and eastern Europe is a good example.”
- “When you look at what growth has been doing there for the last three years, very strong growth, you see inflationary pressures building up and shortages in the labor market. They’re very similar to where the U.S. is. The Czech Republic is a good market to use as a hedge within EM.”
Real Rates Lure
- “We continue to play high real rates with no inflationary pressure - South Africa and Russia remain our preferred markets.”
- “Inflation globally tends to go up, but within EM you still have markets where you don’t see inflationary pressures and actually inflation is expected to fall. South Africa is a good example where a stronger currency is going to support inflation despite higher oil prices.”
- Higher oil prices mean “we’re building up our portfolios with inflation-linked bonds” in “select stories.”
- “One market that comes to mind is Turkey, we like linkers there. We also are also buying inflation-linked bonds in some of the very-low yielding Asian markets such as Thailand.”
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