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Top EMD manager: why Venezuela doesn’t faze me

Top EMD manager: why Venezuela doesn’t faze me

The second best-performing manager in the emerging market hard currency debt sector is digging in his heels on Venezuela and says he can weather a full blown default.

Citywire A-rated Jean-Jacques Durand has retained an 18.5% exposure to the politically volatile market over both June and July, despite a contested referendum and growing international pressure.

Citywire columnist and EMD expert Raphael Kassin previously said President Maduro looked likely to continue to service foreign debt while in power but investors should not discount a major restructuring if the situation changes.

Durand, who previously chastised his peers for not taking adequate risk on board, previously had 23.2% exposure in the EdR Emerging Bonds fund in February but reduced it slightly.

However, he said this does not reflect a change in his overall investment focus. ‘Our investment view on Venezuela is unchanged. As we have been telling investors for some considerable time, the country’s economic and political situation is unsustainable over the long term whatever the oil price, so something will have to change.

‘Events are unfolding faster and faster and tensions have mounted given the high cost to the current regime of giving into internal and external pressure to stand down. Nobody now knows whether the inevitable transition will be peaceful or chaotic’

Durand said, while default is possible, it would not be the core scenario for his fund.

'Whatever the regime in power, the determination to pay creditors, or come to some agreement with them, will remain strong as it is vital to protect the national oil industry.

'This is practically the country's only source of foreign exchange. And that is the main difference between Venezuela and past cases of possible sovereign default.

‘Whatever happens, we are prepared to withstand a default and a debt restructuring as market valuations are much lower than the potential upside from a long term recovery. This has produced highly positive asymmetry which is why the country is our strongest conviction and our largest position.’

The EdR Emerging Bonds fund, which has €498 million in assets, returned 24.2% in euro terms over the three years to the end of July 2017. This compares to an 11% rise by its Citywire-assigned benchmark, the Cust Index JPM EMBI Global (Hedged EUR).

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