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High Yields from Emerging Market Bonds - YouTube
Channel: Morningstar Europe
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hello and welcome to the morning star
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series why should I invest with you i'm
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emma ward i'm here today with claudia
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kellec manager of the M&G emerging
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market bond fund hi Claudia hello so
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it's our emerging markets week this week
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and we can't just focus on equities
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although perhaps they are the better
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known way to access the emerging growth
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story fixed income is what we're here to
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talk about today emerging markets bonds
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were extremely popular a number of years
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ago there was sort of the thing that
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everyone was talking about when interest
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rates started to fall in the UK and
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people were looking for a different way
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to get yield but since then there have
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been a number of reasons the taper
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tantrum for one which has meant that
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they've fallen out of favor presumably
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this is actually being quite a good
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thing for an emerging market bond
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manager because that spent opportunities
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yes and I think we clearly saw that as
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you mentioned during the tape retention
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we had very sharp correction very very
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substantial influence going to the asset
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class that corrected within a couple
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weeks as a consequence they saw a
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surprises we have a huge sell-off as
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managers had to sell the holdings to
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basically cover redemptions on the funds
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I see the pace that we have currently is
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actually quite good for emerging markets
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in the sense that the last thing I would
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like to see is major amount of money
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coming in just to see the same amount of
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money leaving if you have any particular
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mayo headache or headline writer or any
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other fears in the market so I'd rather
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see small and steady flows as opposed to
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those big swings that we saw in the past
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we did see about four and a half billion
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US dollars leave the region you read the
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sector rather emerging market debt in
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May but when you look at the numbers
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this has meant that obviously with low
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demand we have some quite attractive
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yields you know in turkey 10-year
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government bond Azura is around nine and
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a half percent something that everybody
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in the UK would love to be able to get
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on deposit not for some time I affair
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where are you seeing the best
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opportunities are you attracted my right
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side latin turkey turkey obviously is a
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difficult situation because they still
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he need to hash out to the coalition in
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the politics in the very near term they
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are benefiting potentially from items
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such as lower oil prices and so forth
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but the
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my view that's taking a back seat at the
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moment so politics will remain critical
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for countries like Turkey but instead
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I'm focusing on a few opportunities in
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for example terms that themes one is the
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the West recovery strengthening the
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labor market in u.s. pushing up wages
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which arguably that's something the Fed
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is worried about but as an investor I'm
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actually happy for a few countries so
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the US for example has a very strong
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labor force of immigrants from Central
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America so countries like Honduras
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Dominican Republic Guatemala all those
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are migrants they send money home and
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that's really supporting those local
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economies so that's one of the areas
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that is one of the key overweights in
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the portfolio at the moment and we've
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mentioned their regions is it as simple
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as sort of putting a pin in a map and
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saying that's a great place for fixed
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income or is it much more about cymatics
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like you mentioned there yeah I see
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mergermarket seem very much in the theme
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because you cannot just generalize Latin
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America you have some really good in
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improving stories and you have some
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absolutely basket cases the same thing
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with this to Europe Asia is also there
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are different in terms of politics in
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terms of growth whether they're
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commodity importers are exporters so you
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really have to take a much deeper dive
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into the country themselves and see what
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are the key drivers so I never really
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very rarely I'll look at a region as a
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whole just look at the smaller pieces
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that comprise that region and of course
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a fixed income investing is a very
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different thing to equity investing but
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the thematics which dry them it can be
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the same for example we've seen some
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countries do very well out of currency
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weakness when we're looking at equity
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investment and I believe you found fixed
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income opportunities that also benefit
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from that correct yeah so that's the
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other team I'm playing the portfolio
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which basically underweight currencies
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but also more importantly overweight
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some of the corporates that would stand
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to benefit from a weaker currency so
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basically exporters that are gaining
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from having more revenues in either
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dollars or euros depending on the
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company but most of their cost being
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local currency so they're actually
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benefiting quite a bit so we have a few
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names for example in Mexico we have an
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auto part / do sir we have Brazilian
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exporters in the beef sector similarly
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in South Africa we have a pope and paper
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name so all of those companies are
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actually doing much better despite the
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currency weakness in this case is
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actually with the currency weakness and
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what about the third theme for the
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portfolio
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the third team is a really it铆s
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incratis-- tour is the stories there
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will be much less correlated with what's
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happening what is in China or in Greece
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for example and much more correlated
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with its own dynamics where is politics
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or economics so countries such as a
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Ukraine which is undergoing a debt
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restructuring Pakistan Sri Lanka so
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those are very much stories that are
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almost on their own of course those are
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weaker credits so if you have a very
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strong bout of risk aversion those
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countries temporarily they would
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underperform but on the longer term
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basis if you pick the correct countries
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you do the homework there are
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opportunities to be found you just have
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to look very closely I mean you
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mentioned Greece and China they're the
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two big stories of the week in fact
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probably the year are you looking for
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opportunities now or you just sort of
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stay in clear Greece for the time being
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I'm not it's obvious it's a very
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difficult political decision for the
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Europeans and as a consequence for
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investors is very difficult to trade
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those headlines in terms of China I have
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some exposure but relatively defensive
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position on to corporate names that were
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comfortable with one is a car rental
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company they're basically benefits from
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the domestic consumption in this case
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car rentals and the other is a food
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producer which is also then very stable
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demand giving is on a non-cyclical
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sector I'm avoiding the real estate
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sector or any other companies SOS or
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companies that could be bad link impact
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that either through the deleveraging
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process or they slowdown in the economy
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Claudia thank you very much thank you so
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much this is Emma wolf for Morningstar
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thank you for watching
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