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Fixed income chief: don’t forget about LatAm

Fixed income chief: don’t forget about LatAm

Brazil is leading a positive trend in emerging market debt which many investors are ignoring due to a fixation on expectations over global inflation rising.

That is according to Banque de Luxembourg’s head of fixed income, Jean-Philippe Donge, who runs several funds at the firm including the BL Bond Emerging Markets Euro fund.

'The current turnaround story in emerging market debt seems to be Brazil. Usually I don’t tend to invest early in the cycle, as I like to wait for an improving story to develop. But, I still think Brazil has potential and represents a good opportunity,' he told Citywire Selector.

Donge currently has 4.59% allocated to Brazil bonds, as well as a 1.54% currency allocation to the Brazilian real. He said he is currently favouring good quality paper in and outside of Europe.

'In emerging markets, there are still marked divergences between different countries. Exporting Asian countries could suffer from US economic policy while a number of Latin American countries are likely to return to more active growth. Mexico's fate will depend on the Nafta renegotiations.

'Our focus at the moment is towards investment grade issuers, so we are looking to investment grade countries such as Mexico, Poland, and South Korea, we are not really looking to places like Venezuela.'

Pioneer’s head of emerging market debt, Yerlan Syzdykov, recently named Venezuela as one of the most dangerous markets in the EMD universe.

Despite it previously being hailed as a possible turnaround story in the asset class, Donge said this is also a country he is cautious on.

'There might be an event in Venezuela, there might not. We have been waiting for one to happen since last year,' said Donge.

'Elsewhere, the frontier markets are also interesting for us. There are interesting opportunities in Vietnam and Sri Lanka, they might not be turnaround stories, but they could become rising star countries.’

The BL Bond Emerging Markets Euro fund returned 14.6% in euro terms over the three years to the end of March 2017.

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