Singapore: Emerging- and frontier-market dollar bonds will more than recover from last year in 2019 as the trade war winds down and China takes steps to support its economy, according to NN Investment Partners.
Developing notes will rise 5 to 10 per cent, while returns from frontier securities should exceed 10 per cent, said Leo Hu, senior portfolio manager for hard-currency emerging-market debt at NN Investment, which oversees the equivalent of $273 billion (Dh1 trillion). That compares with 4.3 per cent and 5.8 per cent declines, respectively, in 2018, JPMorgan Chase & Co. indexes show.
“Trade tensions will likely be resolved and policymakers will make the right decision to stabilise economic growth in China,” the Singapore-based Hu said in an interview. “That’s setting a very good scene for this year.”
Sovereign dollar bonds from non-developed nations took a beating in 2018, with yields rising the most in a decade, as Treasury yields rose and the trade dispute between the US and China worsened.
The average yield on international notes issued by emerging sovereigns rose 159 basis points to end 2018 at 6.864 per cent, according to JPMorgan’s EMBI Global Diversified index. The rate from frontier nations increased 205 basis points to close last year at 7.94 per cent, the firm’s Next Generation Markets index showed.
The moves last year have created a cushion if US rates rise further, Hu said, adding that the market would need to sell off massively to erase the carry trade benefits, which is an unlikely scenario, he said.