The world's largest publicly traded hedge fund is finding better value in local-currency bonds compared with their hard-currency equivalents, which have become a crowded trade. Local debt has turned a corner in 2017, providing more than double the ...and more »
When it comes to emerging-market sovereign debt, Man Group Plc is going local.The worldâ€™s largest publicly traded hedge fund is finding better value in local-currency bonds compared with their hard-currency equivalents, which have become a crowded trade. Local debt has turned a corner in 2017, providing more than double the returns of dollar-denominated developing-country bonds after deliveringÂ losses over the past three years, Bloomberg Barclays indexes show.â€œOn the hard currency side, we think there is a lot of complacency,â€ said Lisa Chua, portfolio manager for emerging-market debt forÂ Man GLG,Â a unit of London-based Man Group. â€œOn the local-currency side, medium term we think there is value there. We think a lot of risk around Trump has been priced in over the medium term.â€
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Man Group joins BNP Paribas Investment Partners and JPMorgan Chase & Co.â€™s private bank division in turning bullish on local-currency credit. Investors have pumped $4.5 billion into domestic debt this year, EPFR Global data show, as they look past the threat of U.S. policy tightening andÂ President Donald Trumpâ€™s protectionist rhetoric. Overseas funds have rapidly boosted their overweight positions in Brazil and Russia the past six months amid gradual gains for Indonesia, according to a Goldman Sachs Group Inc. survey. Â Analysts are forecasting gains for more than half of the emerging-market currencies tracked by Bloomberg by the end of this year, and BNP Paribas Investment Partners also predicts the dollar willÂ depreciate against most of the developing-nation currencies in 2017. The Federal Reserve raised its benchmark lending rate a quarter percentage point last week, without accelerating the timetable for future increases.The â€œFedâ€™s rates hikes are already priced in, so thereâ€™s no additional strength for the dollar, and emerging-market currencies look very cheap at the moment,â€Â said Jean-Charles Sambor, deputy head of emerging-market fixed income at BNP Paribas Investment Partners. â€œThe bull run of the dollar for the last couple of years -- this trend might have been over at the end of 2016.â€In Asia, BNP Paribas Investment Partners likes Indonesian and Indian local sovereign credits, as well as some local-currency bonds from banks or quasi sovereigns, such as in Russia. Sambor also expects Brazilâ€™s real and the Mexican peso will appreciate further and lure inflows into those markets in the longer run.â€œEM has been sold off for many years and people have very light positions on EM bonds,â€ Ben Sy, head of fixed income, currencies and commodities at JPMorganâ€™s private-banking unit in Asia. â€œI am sure some funds will go to local currency because it is still one of the less crowded asset classes and the carry is still very decent.â€
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