Citywire october 2013

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Citywire october 2013

  1. 1. For investment professional use only – Not for public distribution Aberdeen Emerging Market Debt October 2013 Edwin Gutierrez, Portfolio Manager – Emerging Market Debt Aberdeen Asset Management
  2. 2. 1 • Recent market trends • The long term investment case • Investment process and performance Table of contents Aberdeen Emerging Market Debt
  3. 3. 2 Recent market trends Emerging Market Debt
  4. 4. 3 Rising US Treasury yields traditionally pose a challenge for EMD EM sovereign spreads and US Treasury yields Index changed from EMBI to EMBI+ from 31 Dec 97 Source: JP Morgan, Bloomberg, 30 Jun 13 0 500 1.000 1.500 2.000 2.500 0 1 2 3 4 5 6 7 8 9 gen 94 gen 96 gen 98 gen 00 gen 02 gen 04 gen 06 gen 08 gen 10 gen 12 Spread bpsYield % US 10yr Treasury yield (LHS) JPM EMBI/EMBI+ Index spread (RHS) US 10 yr yield widened 115bps; EMBI spread widened 295bps US 10 yr yield widened 120bps; EMBI+ spread widened 158bps US 10 yr yield widened 68bps; EMBI+ spread widened 125bps Emerging Market Debt
  5. 5. 4 EMD yields have adjusted with rising US Treasury yields EM Local currency index: JPM GBI-EM GD, EM Hard currency index: JPM EMBI GD, EM Corporate index: JPM CEMBI BD Source: JP Morgan, S&P, Bloomberg, 30 Aug 13 Yield (%) 0 2 4 6 8 10 12 14 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (%) EM Local Currency (BBB+) EM Corporates (BBB) EM Hard Currency (BBB-) US 10yr (AA+) Emerging Market Debt
  6. 6. 5 EM corporate bonds outperformed sovereigns due to lower UST sensitivity Source: JP Morgan, Bloomberg, 30 Jun 13 Index spreads (bps) Aberdeen Global – Select Emerging Market Bond Fund 200 250 300 350 400 450 lug 12 ago 12 set 12 ott 12 nov 12 dic 12 gen 13 feb 13 mar 13 apr 13 mag 13 giu 13 JPM EMBI Global Diversified Index JPM CEMBI Broad Diversifed Index
  7. 7. 6 % The majority of losses YTD in local currency have been due to EM FX Source: JP Morgan, 11 Sept 13 85 90 95 100 105 gen 13 feb 13 mar 13 apr 13 mag 13 giu 13 lug 13 ago 13 set 13 GBI-EM GD Total Return (in USD) GBI-EM Global Div Rates (Local Bond) Returns GBI-EM GD FX Return (USD) Emerging Market Debt
  8. 8. 7 Performance of stock markets in Q2 13 (MSCI total return ) Source: Aberdeen Asset Management, 30 Jun 13 Foreign outflows from equity markets weigh on currencies -30% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% China HongKong India Indonesia Korea Malaysia Philippines SriLanka Taiwan Thailand CzechRepublic Hungary Poland Russia SouthAfrica Turkey Argentina Brazil Chile Colombia Mexico Peru Local Currency USD Emerging Market Debt
  9. 9. 8 The long term investment case Emerging Market Debt
  10. 10. 9 EMD countries will be the main drivers of future growth Emerging Market Debt 2010 Source: Citi Mar 11; GDP measured in 2010 PPP USD With a growing, financially independent, aspirational middle class 2050f North America 22% Europe 23% Other 9% Japan 6% Emerging Markets 40% Europe 9% Japan 2% Emerging Markets 69% Other 9% North America 11%
  11. 11. 10 EM economies have considerably lower debt levels than in the DM world Emerging Market Debt General Government Debt (% GDP) vs Government Balance (% GDP) Belgium France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Slovak Republic Slovenia Spain Australia Canada Norway Sweden Switzerland UK USA China India Indonesia Korea Malaysia PhilippinesThailand Vietnam Belarus Croatia Egypt Georgia Hungary Iraq Ivory Coast Jordan Kazakhstan Latvia Lebanon Lithuania Namibia Poland Qatar Romania Russia Saudi Arabia Senegal Serbia South Africa Turkey UAE Ukraine Argentina Barbados Brazil Chile ColombiaCosta Rica Dominican Republic Ecuador El Salvador Guatemala Jamaica Mexico Panama Peru Uruguay Venezuela 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Eurozone G10 Asia CEEMEA LatAmJapan Developed countries Emerging countries General Government Balance for 2012 (% of GDP) GrossGeneralGovernmentDebtfor2012(%ofGDP) Japan's Govt. Debt is 236% Source: IMF, World Economic Outlook Database, May 12
  12. 12. 11 International reserves (as % of GDP) Sovereign balance sheets are much stronger than they were 10 years ago Source: World Bank, Jul 13 0 5 10 15 20 25 30 35 40 45 Brazil China Mexico Peru Russia South Korea % 2002 2012 Emerging Market Debt
  13. 13. 12 Net external debt … and debt levels have improved dramatically Data covers 40 major EM economies Source: Emerging Advisors Group, Jul 13 Public debt 70% 60% 50% 40% 20% 10% 0% 1970 1980 1990 2000 2010 30% Gross public debt (% of GDP) 60% 50% 40% 20% 10% 0% 1970 1980 1990 2000 2010 30% Net external debt (% of GDP) Emerging Market Debt
  14. 14. 13 Foreign Direct Investment (US$bn) FDI inflows remain robust Source: Bloomberg, 31 Dec 12 0 20 40 60 80 100 120 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 India Brazil China Emerging Market Debt
  15. 15. 14 Real yields are increasingly compelling relative to developed markets Source: S&P Local Currency Debt Rating, Bloomberg, 30 Aug 13 Country 10 year bond yield (%) Inflation y-o-y (%) Real yield (%) Credit rating (S&P)* Brazil 11.7 6.3 5.4 A- Nigeria 13.6 8.7 4.9 BB- Hungary 6.6 1.8 4.8 BB Colombia 5.8 2.2 3.6 BBB+ Poland 4.5 1.1 3.4 A Mexico 6.8 3.5 3.3 A- Peru 6.0 3.2 2.7 A- South Africa 8.2 6.3 1.9 A- US 2.8 2.0 0.8 AA+ Germany 1.8 1.5 0.3 AAA Japan 0.7 0.7 0.0 AA- UK 2.7 2.8 -0.1 AAA Emerging Market Debt
  16. 16. 15 Breakdown of CEMBI Broad Diversified $ Index 69% investment grade, average rating BBB AAA 0% AA 7% A 26% BBB 36% BB 15% B 10% C 1% NR 5% Breakdown of GBI-EM Global Diversified LC Index 83% investment grade, average rating BBB+ AA 0% A 57% BBB 26% BB 17% Breakdown of EMBI Global Diversified $ Index 58% investment grade, average rating BBB- AA 4% A 8% BBB 47% BB 23% B 17% C 0% NR 1% … for investment grade credit quality Emerging Market Debt Source: JP Morgan, Mar 13
  17. 17. 16 • Institutional investors remain structurally underweight and will continue to look to EM bonds to diversify their exposure away from core developed bond markets Institutional inflows should support EMD markets over the long term Emerging Market Debt Source: Morgan Stanley, 3 Jan 13 Global diversified portfolio exposure to EM (% total) 1,7 3,9 4,5 5,0 0 1 2 3 4 5 6 7 8 9 10 US Europe EM debt EM equity
  18. 18. 17 Emerging market valuations reflect significant pessimism % of Global fund managers who are overweight emerging market equities Source: BofA Merrill Lynch Fund Manager Survey, Aug 13 60 45 30 15 0 -15 -30 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Lowest since Nov 01 Emerging Market Debt
  19. 19. 18 • In the short term, we expect further volatility as investors continue to focus on the pace of US interest rate normalisation • EMD valuations have adjusted in response to the move in US Treasuries, but sovereign balance sheets are in much better shape than in previous sell-offs and default risk remains low, making valuations appear more attractive • The divergence between DM and EM growth is likely to narrow in the short term, but will remain structurally pronounced • Chinese growth remains at risk in the near term as the new administration attempts to address the excesses in the shadow banking and real estate sectors; but in the long term these efforts will put the Chinese economy on a more solid footing • Countries with sizeable current account deficits and commodity exporters linked to Chinese investment and may remain under pressure • Structural redeployment by institutional investors away from developed bond markets will continue to ensure inflows into EM bond markets over the long term EMD outlook Aberdeen Emerging Market Debt
  20. 20. 19 Investment process and performance Aberdeen Emerging Market Debt
  21. 21. 20 Five steps to delivering alpha Leaving nothing to chance Aberdeen Emerging Market Debt Risk Framework Portfolio Relative value Scenario forecasts Gauging Market dynamics Fundamental research
  22. 22. 21 Portfolio construction and risk parameters Aberdeen Emerging Market Debt * These are tactical guidelines the Investment Manager intends to follow as at the date of this document and are subject to change at the Investment Manager's sole discretion. Investors should always refer to our funds’ investment objectives and restrictions as stated in the latest prospectus Building diversified portfolios Sample portfolio guidelines* Country Maximum exposure per country: 20%, Smaller countries: 2% Currency Total exposure: 25%, Individual currency: 5% Corporate Total exposure: 20%, Individual issuer: 1% Diversification Minimum 25 countries Corporates Currencies Hard currency sovereigns Local currency sovereigns Pool of investment opportunities with attractive risk return characteristics Risk factors Duration, exposure to high yielding issuers/sensitivity to commodity prices Correlation, beta exposures, tracking error and VaR analysis
  23. 23. 22 Summary Aberdeen Emerging Market Debt 1. EMD Plus Strategy Inception: 1 Aug 99 Benchmark: JPM EMBI Global Div. Source: Aberdeen Asset Management. Total return, gross of fees in USD, 31 Aug 13 Generating intelligent alpha Annualised performance1 YTD 1 year 3 years 5 years Since inception Composite -7,86 -2,28 6,60 9,22 15,21 Benchmark -9,04 -4,98 4,59 7,69 10,46 -15 -10 -5 0 5 10 15 20 • Successful, well-resourced, stable team with deep experience • Recognised emerging markets specialist in both debt and equity • Long established network across emerging market countries • Exploiting opportunities through extensive research • Size ensures investment flexibility Risk statistics 3 years Tracking error (%) 2.38 Information ratio 0.84 Sharpe ratio 0.73
  24. 24. 23 Past performance is not a guide to future returns. The value of investments, and the income from them, can go down as well as up and your clients may get back less than the amount invested. The views expressed in this presentation should not be construed as advice on how to construct a portfolio or whether to buy, retain or sell a particular investment. The information contained in the presentation is for exclusive use by professional customers/eligible counterparties (ECPs) and not the general public. The information is being given only to those persons who have received this document directly from Aberdeen Asset Management (AAM) and must not be acted or relied upon by persons receiving a copy of this document other than directly from AAM. No part of this document may be copied or duplicated in any form or by any means or redistributed without the written consent of AAM. The information contained herein including any expressions of opinion or forecast have been obtained from or is based upon sources believed by us to be reliable but is not guaranteed as to the accuracy or completeness. Issued by Aberdeen Asset Managers Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Registered in Scotland No.108419. Registered Office: 10 Queen’s Terrace, Aberdeen, AB10 1YG. For investment professional use only Not for public distribution Aberdeen Emerging Market Debt

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