ING IM’s head of multi-asset strategies has trimmed exposure to hard currency emerging market bonds as he believes the impact of tapering has further to go.
Speaking to Citywire at the Fondsprofessionell conference in Mannheim, Ewout van Schaick said he had reduced local currency holdings last summer due to similar concerns.
However, this latest move is driven by a belief that emerging markets as a whole will be exposed to further outflows off the back of gradual tapering.
'We reduced our hard currency exposure to 20% from 28% this week,' van Schaick said. 'We feel that the problems in emerging markets will not go away easily. It's also likely that with tapering, we will see outflows strengthening.'
The central bank of Turkey this week took action against its depreciating currency with a rate hike. The move was contested by many, including the country's prime minister, who fear the rate rise will dampen economic growth.
'It was a necessary but now sufficient move,' van Schaick said. 'Turkey's current account deficit is big and the rally up to May last year, was mostly reliant on speculative inflows.'
Other emerging markets, which also attracted hot money flows and as such suffered in the sell-off last summer, are also likely to see rate hikes, according to van Schaick.
'We are cautious on Venezuela and Argentina. Brazil also looks vulnerable and we think that the real still looks too expensive,' he added.
Countries that are still favoured in the portfolio are Korea, Poland and Mexico, where 'you still wonder if they are emerging'.
The fund manager remains positive towards European equities which he regards as cheap. However, he recently reduced exposure to Spanish equities over concerns the companies would be hit by a slow-down in Latin America.
'We moved our Spanish overweight to Italy. It's not just the banking sector but also energy that would be exposed. We decided rather to play out our European peripheral exposure through Italy instead.'
Schaick runs a host of funds across global equities, global bonds and mixed asset funds. His best performance relative to his peers over the past three years is in the Mixed Assets – Conservative sector.
Over the three years to the end of December 2013 he has returned 17.2% compared to an average manager return of 9.22% over the same period.