Tillväxtmarknaderna har gått sidledes under året, men men ETF-investerare kan hitta en tillväxtmöjlighet bland utvecklingsekonomierna när dessa marknader återhämtar sig. Det kan till och med bli bättre än så. Emerging Market vinnare 2019 säger Goldman Sachs.
Investeringsbanken Goldman Sachs förväntade sig att emerging market aktier, valutor och obligationer kan komma att att se en blygsam återhämtning nästa år, rapporter från Reuters. ”Vi förväntar oss blygsam positiv avkastning över de stora EM-indexen nästa år, om än med låg riskjusterad avkastning”, säger analytiker vid Goldman i sin 2019-prognosrapport.
Tillväxtmarknadsaktierna kan uppleva den största ökningen
De bankprojicerade tillväxtmarknadsaktierna kan uppleva den största ökningen med 12% i dollar, medan EM-valutorna bör stärkas med cirka 2% i genomsnitt på ekonomiska förbättringar och en blygsamt svagare amerikanska dollar. Samtidigt tillade de på den lokala valutamarknaden att ett noggrant spårat skuldindex för GBI-EM skulle kunna se en 10% återhämtning på en ”omhävd” basis och inkludera ”varaktiga effekter”.
Ett antal sätt att få exponering mot Emerging Market
Investerare som tror på tillväxtmarknaden har ett antal sätt att få exponering för det internationella segmentet. Till exempel har Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) och iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) varit populära sätt att få bred exponering mot Emerging Market.
Dessutom ger något som Goldman Sachs ActiveBeta Emerging Markets Equity ETF (GEM) en smart beta- eller multifaktorstrategi till tillväxtmarknaderna. GEM försöker reflektera utvecklingen av Goldman Sachs ActiveBeta Emerging Markets Equity Index, som inkluderar exponering för att utveckla marknadslager, men väljer komponenter baserade på bra värde, stark momentum, hög kvalitet och låg volatilitet.
WisdomTree Emerging Currency Strategy Fund (NYSEArca: CEW) ger exponering mot amerikanska dollar rörelser sig mot en diversifierad korg av valutor från emerging market.
Dessutom finns VanEck Vectors Emerging Markets Local Currency Bond ETF (NYSEArca: EMLC) WisdomTree Emerging Markets Local Debt Fund (NYSEArca: ELD), SPDR Bloomberg Barclays Emerging Markets Local Bond ETF (NYSEArca: EBND) och iShares Emerging Markets Local Currency Bond ETF (NYSEArca: LEMB). De ger alla exponering mot emerging markets obligationer som är denominerade i sina lokala valutor, vilket bör ge en extra spark om tillväxtmarknadsländernas valutor stiger i värde mot den amerikanska dollarn. Detta inträffar om emerging market vinnare 2019.
EM Bond Credit Ratings Downgrades Call for Diversification
EM Bond Creditworthiness Has Improved
Over much of the past two decades, many emerging markets (EM) countries have benefited from a number of factors that have generally led to improved credit ratings. Until a few years ago, strong growth in China and rising commodity prices helped drive economic growth among many raw materials exporters. Central bank monetary stimulus in many developed countries led to capital flows into EM countries, helping to finance growth and keep borrowing costs low. Perhaps most important in explaining this long-term trend of improving creditworthiness are the structural reforms which many countries implemented after the financial crises of the 1980s and 1990s. Adoption of floating exchange rates and an increased ability to issue debt in local currencies has helped reduce the impact of external shocks on many EM economies.
But Has the Improvement Trend Stalled?
Since 2013, the long-term improvement in EM credit ratings appears to have stalled. This change is illustrated by the evolution in the credit rating composition of the J.P. Morgan EMBI Global Diversified Index,1 which tracks the U.S. dollar denominated EM sovereign and quasi-sovereign bond market. The investment-grade-rated portion of the Index reached a peak of 66% in 2013, versus 45% ten years prior and only 14% in 1997. However, this figure has been declining since 2013, with the high yield portion of the Index reaching 46% at the end of April.2
Investment Grade and High Yield Rating Breakdown of the J.P. Morgan EMBI Global Diversified Index 1997 to April 2016
(click to enlarge) Source: J.P. Morgan. Past performance is no guarantee of future results and may be lower or higher than current performance.
A spate of downgrades in recent years has included some notable losses of investment grade status by certain countries. For example, Brazil experienced downgrades as a result of economic contraction, deteriorating fiscal health, and political gridlock. Russia’s high dependence on oil and gas to help finance economic growth and government expenditures, and the impact of Western imposed sanctions, resulted in downgrades beginning in 2014. South Africa now finds itself facing the possibility of losing its investment grade status as it struggles with low growth and high public debt levels.
Positive Credit Stories Can Still be Found
The story, however, is not all doom and gloom. A number of EM countries have seen an improvement in their credit ratings in recent years. For example, effective economic reforms in Peru and the Philippines have had a positive impact on the fiscal health of these countries, which led to rating upgrades. Hungary’s credit rating has benefitted from economic growth and the government’s commitment to managing debt levels and spending, which may help it to regain investment grade status. In Indonesia, policy effectiveness and a relatively healthy balance sheet have led to expectations of a possible upgrade this year, which may result in an investment grade rating from all three major rating agencies.
Diversify within EM Bonds
The diverging credit ratings among EM countries, and the fundamental drivers of these changes, serve as a reminder of the importance of diversification within an allocation to EM bonds. By diversifying across countries, sectors, currencies, and credit quality, investors can gain exposure to the full spectrum of EM debt. For example, the local currency debt universe is skewed toward higher rated issuers because countries with larger local bond markets also generally have greater economic stability and borrower rights. Therefore, this market can help investors reduce credit risk relative to the broad hard currency EM sovereign bond market while taking on exposure to local currencies.
Potential for Higher Yields and Increased Diversification
Over the long term, an allocation to EM bonds can potentially provide both yield enhancement and diversification benefits within a broader portfolio. EM bond yields have risen since early 2013, reflecting the market’s assessment of creditworthiness, and may offer a yield premium versus developed bond market yields. Low correlation3 with other asset classes, including core fixed income sectors, may improve a portfolio’s diversification.
Investors can access bonds issued by emerging market governments and denominated in local currencies with the VanEck Vectors™ J.P. Morgan EM Local Currency Bond ETF ( EMLC). Investors seeking to invest beyond sovereigns can gain access to high yield bonds issued by EM corporate issuers through the VanEck Vectors Emerging Markets High Yield Bond ETF ( HYEM). Alternatively, investors seeking diversified exposure to the broad EM debt universe across both sectors and currencies can do so through the VanEck Vectors Emerging Markets Aggregate Bond ETF ( EMAG).
Authored by William Sokol, Product Manager, ETFs
ETFs is authored by VanEck thought leaders. VanEck is the sponsor of VanEck Vectors ETFs and is currently among the largest providers of exchange traded funds (ETFs) in the U.S. and worldwide. VanEck Vectors ETFs empower investors to help build better portfolios with access to compelling investment themes and strategies. Our ETFs span many global asset classes, and are built to be transparent, liquid, and pure-play reflections of target markets.
IMPORTANT DISCLOSURE
1 J.P. Morgan EMBI Global Diversified Index is comprised of U.S. dollar denominated Brady bonds, Eurobonds, and traded loans issued by emerging markets sovereign and quasi-sovereign entities. The index weighting methodology limits the weight of countries with larger debt stocks.
2 Source: J.P. Morgan. Securities are categorized as Investment Grade if two out of three ratings from Moody’s, S&P and Fitch are Baa3/BBB-/BBB- or higher. If a security has two ratings, both must be Baa3/BBB-/BBB- or higher. Otherwise, securities are categorized as High Yield.
3 Correlation measures how two securities move in relation to each other.
This content is published in the United States for residents of specified countries. Investors are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this content. Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.
The indices listed are unmanaged indices and do not reflect the payment of transaction costs, advisory fees, or expenses that are associated with an investment in any underlying exchange-traded funds. Historical performance is not indicative of future results; current data may differ from data quoted. Indexes are unmanaged and are not securities in which an investment can be made.
Diversification does not assure a profit nor protect against loss. Indices are not securities in which investments can be made.
An investment in the Funds may be subject to risk which include, among others, credit risk, call risk, interest rate risk, and sovereign defaults, all of which may adversely affect the Funds. High yield bonds may be subject to greater risk of loss of income and principal and are likely to be more sensitive to adverse economic changes than higher rated securities. International investing involves additional risks which include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Changes in currency exchange rates may negatively impact the Funds’ return. Investments in emerging markets securities are subject to elevated risks which include, among others, expropriation, confiscatory taxation, issues with repatriation of investment income, limitations of foreign ownership, political instability, armed conflict and social instability. The Funds’ assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors.
Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will generally decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com/etfs. Please read the prospectus and summary prospectus carefully before investing.
Emerging Markets Local Currency Bonds: A Market to Revisit
Emerging markets (”EM”) government bonds, particularly those denominated in local currencies, have bounced back in 2016. It’s time to look again at what they can offer. A Market to Revisit.
The past few years have not been kind to EM local currency bonds. Falling commodity prices and concerns about slowing global growth resulted in weak performance across many EM asset classes. Local currency bonds were particularly impacted by the robust U.S. dollar, which remained strong throughout 2015, and the prospect of four potential Federal Open Market Committee rate hikes in 2016. These headwinds caused investors to push valuations down to levels of extreme weakness, particularly on several EM currencies, which may have been oversold heading into 2016.
Q1 Tailwinds Provide Support
However, the Federal Reserve’s sentiment may have changed. The Fed appears to be taking a more dovish stance and the market is now expecting fewer rate hikes this year. Some immediate results could include a pullback in the U.S. dollar and the re-emergence of a risk-on appetite. These tailwinds have been strengthened by the first quarter rebound in commodity prices and the prospect of pro-growth political reform in several EM countries.
EM local currency bonds benefited from these supportive factors, which contributed to a return of 11.02% in the first quarter, as represented by the J.P. Morgan GBI-EM Diversified Index, significantly outperforming EM hard currency sovereign bonds and corporates. Every country in the index had both positive local bond market returns and currency appreciation for the period. Dedicated local currency funds also received significant inflows towards the end of the quarter.
Positive Flows as Investors Take Notice
Why the positive flows? After years of volatility and weak performance, EM local currency bonds may be underrepresented in many investors’ portfolios. In addition to market conditions being favorable in the first quarter, local currency bonds have some particularly attractive characteristics that stem from two distinct sources of return they provide: local interest rates and currencies.
Because of these distinct drivers of return, local currency EM bonds have exhibited low historical correlations with other segments of the fixed income market, especially core U.S. investment grade sectors, as shown below. Local currency EM bonds have also historically provided higher yields versus other EM bond sectors, with an investable universe that tends to be skewed more towards higher quality issuers. For example, 84% of local currency EM government bonds were rated investment grade at the end of the quarter, versus 63% of those denominated in hard currencies, as measured by the BofA Merrill Lynch Emerging Markets External Sovereign Index.
Low Correlation to Certain U.S. Fixed Income Sectors
As of March 31, 2016 (Click to enlarge) Source: Morningstar.
Historically Higher Yields Versus Other EM Sectors
As of March 31, 2016
(Click to enlarge)Source: FactSet. Index performance is not illustrative of fund performance. Fund performance current to the most recent month end is available by visiting vaneck.com/emlc.
These unique drivers of return are also sources of risk, and should be considered along with credit, economic, political and other risks associated with EM investments.
We believe that local currency EM bonds may potentially provide unique diversification benefits within a global fixed income portfolio, with both potentially higher yields and higher credit quality versus other EM fixed income sectors. For investors who have reduced their exposure in recent years, we believe it is a market worth revisiting.
Investors interested in this space may find easy access to local currency denominated bonds issued by emerging markets governments through VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC).
Authored by William Sokol, Product Manager, ETFs
ETFs is authored by VanEck thought leaders. VanEck is the sponsor of VanEck Vectors ETFs and is currently among the largest providers of exchange traded funds (ETFs) in the U.S. and worldwide. VanEck Vectors ETFs empower investors to help build better portfolios with access to compelling investment themes and strategies. Our ETFs span many global asset classes, and are built to be transparent, liquid, and pure-play reflections of target markets.
IMPORTANT DISCLOSURE
1 Source: J.P. Morgan Emerging Markets Bond Index Monitor, as of 3/31/16.
2 Correlation measures how two securities move in relation to each other.
This content is published in the United States for residents of specified countries. Investors are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this content. Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.
The indices listed are unmanaged indices and do not reflect the payment of transaction costs, advisory fees, or expenses that are associated with an investment in any underlying exchange-traded funds. Historical performance is not indicative of future results; current data may differ from data quoted. Indexes are unmanaged and are not securities in which an investment can be made.
JPMorgan GBI-EM Global Diversified Index (GBI-EM) tracks local currency denominated EM government debt.
BofA Merrill Lynch Emerging Markets External Sovereign Index (EMGB) tracks US dollar and Euro denominated EM government debt.
The asset classes referenced in the charts are represented by the following indices: High Yield Bonds: Barclays US Corporate High Yield Index measures the market of U.S. dollar denominated, non-investment grade, fixed-rate, taxable corporate bonds. Investment Grade Corporate Bonds: Barclays US Corporate Investment Grade Index tracks the investment grade, fixed-rate, taxable, corporate bond market. Inflation Linked Bonds: Barclays US Government Inflation Linked Index tracks US Treasury Inflation Protected Securities (TIPS) with at least one year until final maturity Broad US Investment Grade: Barclays US Aggregate Bond Index tracks the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS, ABS and CMBS. Treasuries: Barclays US Treasury Index tracks U.S. dollar-denominated, fixed-rate debt with at least one year until final maturity issued by the U.S. Treasury. EM Local Sovereigns: JPMorgan GBI-EM Global Diversified Index (GBI-EM) tracks local currency denominated EM government debt. EM USD & EUR Sovereigns: BofA Merrill Lynch Emerging Markets External Sovereign Index (EMGB) tracks US dollar and Euro denominated EM government debt. EM USD Corporates: BofA Merrill Lynch US Emerging Markets Liquid Corporate Plus Index (EMCL) tracks the US dollar denominated nongovernment debt of EM.
Diversification does not assure a profit nor protect against loss.
An investment in the Fund may be subject to risk which include, among others, credit risk, call risk, interest rate risk, and sovereign defaults, all of which may adversely affect the Fund. High yield bonds may be subject to greater risk of loss of income and principal and are likely to be more sensitive to adverse economic changes than higher rated securities. International investing involves additional risks which include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Changes in currency exchange rates may negatively impact the Fund’s return. Investments in emerging markets securities are subject to elevated risks which include, among others, expropriation, confiscatory taxation, issues with repatriation of investment income, limitations of foreign ownership, political instability, armed conflict and social instability. The Fund’s assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors.
Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will generally decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com/etfs. Please read the prospectus and summary prospectus carefully before investing.
