Recent outflows in emerging market debt should not derail the long-term case for investing in the asset class says, JP Morgan Asset Management manager Didier Lambert.
In a web conference on emerging market debt the manager said it was a challenging time for the asset class, following outflows in the region of $3.2 billion over recent weeks.
However, Lambert, said the ambitions set out by JP Morgan’s emerging market debt (EMD) team under the guidance AA-rated Citywire manager Pierre-Yves Bareau remained intact despite recent turbulence in the developed and emerging markets.
‘I think, in this type of [volatile] situation, it is important to step back a bit and look at what has happened,’ said Lambert. ‘The first thing is to recognise where we are in terms of our long-term roadmap that we have been working on over the last few years, and we can see that is still valid.’
Lambert said the asset class faced short term risks caused by the prospect of contagion from the developed world and investors must therefore adapt.
‘There is a fear of recession and fear of disruption in the markets. Short term risks are there but we have pockets of value,’ he said. ‘At the moment, the strategy is to remain close to home and favour investment grade because it is set to benefit in this type of environment.’
This JP Morgan strategy is based on two long-term themes of convergence, assessing the spread and real rate of compression in the asset class. This is in addition to a theme of rebalancing, which looks at where EM currencies have room to appreciate.
Furthermore, Lambert said he expected EMD to benefit from the greater tool box of methods available to EM governments and central banks compared to their developed world counter-parts.
‘In the EM, there is room to manoeuvre, within the fiscal side that room is much better than it is for the developed world,’ he said. ‘And, the other thing is, there is also room to move on the monetary side, which we don’t have, or we do but very little, in the developed world.’
Lambert was one of three hires from Fortis Investments to join JP Morgan under Bareau in November 2009. At Fortis, Lambert was deputy chief investment officer for fixed income under Bareau. The other two managers to join at the same time were Michal Wozniak and Alain Defise.
The JP Morgan EMD fund has returned 14.91% the past three years compared to the benchmark – BofA Emerging Markets Sovereign – which has achieved 36.52% over the same period.