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Invesco’s Batty: how GTR is getting to grips with EM

Invesco’s Batty: how GTR is getting to grips with EM

Brazil is challenging and its political situation is rocky, but its economy is through the worst, according to Invesco’s Richard Batty.

'Globally, interest rates having been coming down and emerging market bonds have been rallying, Brazil has been a good place to be,' he told Citywire Selector.

With 2.5% of the Invesco Global Targeted Returns fund invested in Brazil, Batty said the team has been selling down local stocks as well as buying local currency.

'The currency is quite cheap, obviously, it is quite risky, but it also offers quite a lot of carry which has been attractive for us to have small positions in both the Brazilian real and the Mexican peso, as part of our emerging markets carry idea.

'Brazilian stock markets don’t yield that much and don’t yield anywhere near as much as bonds and the currency. There’s an extra carry coming through by selling the stock market. While you have to pay the dividends, you actually do receive the bond yield in return.'

Batty said this a function of accessing the futures market in Brazil and said this move has helped the team double the carry on this position.

'A very high carry is available in a number of areas, the economy has gone through the worst in Brazil and markets have priced in a difficult environment for the country’s currency.

'The stock market has actually done really well in the last few years, which is why we are selling it as part of our carry trade theme.'

Local debt

Batty, who also has positions in countries such as Mexico (4.05%), India (4.48%) and South Korea (2.29%), said emerging markets have generally had a bad run but said this should not deter investors.

'There is lots of bad news in emerging markets, as a lot of the countries are quite commodity export-orientated and there has been a wash out in a lot of EM currencies.

'But a lot of them actually do look quite good value when you look at the local bond market and the level of foreign exchange in these markets.

'We have been adding to these sorts of markets and have stuck with our EMD exposure from the beginning of the year. We have taken up the bond and the foreign exchange exposure in Mexico, Poland and Hungary in order to buy local debt.'

While Batty admits Mexico has struggled amid proposed plans by Donald Trump, he said the markets priced this very quickly, making the peso cheap.

'American’s have been talking down the dollar to some extent and all in all that’s been good for Mexico,' he added.

Over the three years to the end of May, the Invesco Global Targeted Returns fund returned 9.1% in euro terms. This compares with a 4.4% sector average over the same time period.

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