01.02.2011

When one talks about investing in Emerging markets, let alone Bonds, one normally thinks of markets which are more volatile and largely politically unstable. However in most cases this is far from the truth as most people do not have a deep insight into this particular growing market. However WIOF has launched a fund which moves investment into Emerging Market Bonds. Bonds are good indicator of how the region’s countries’ economies are doing and underlie their huge growth potential. Thus the WIOF Global Emerging Markets Bond Fund enables you to participate in these markets’ sprint to greater heights. This fund primarily invests in fixed and floating rate debt securities issued or guaranteed by governments and corporate entities in the emerging markets of Europe, Asia, Africa and South America and offers a relatively conservative approach to the appealing global Emerging Market debt markets

Economic outlook

During the global crisis, emerging markets have experienced smaller output losses compared to the developed economies and are expected to demonstrate more robust growth in the subsequent years. A strong balance of payment position and the absence of large macroeconomic imbalances have made Emerging Markets more flexible and resilient in the face of the global downturn. The upsurge of commodity prices has positively affected the balance sheets of Emerging Market exporting countries, exposed to the commodity price swings. The recent global financial crisis has shifted economic momentum from Developed Markets to Emerging Markets, increasing the relative attractiveness of Emerging Markets and demonstrating that underlying fundamentals do make a difference.

With still no sight of any exit by the world’s major central banks has strengthened this particular form of investment. Also the growth and fiscal metrics of Emerging Market economies are relatively much stronger. And thanks to developed market debt problems Emerging Market debt has finally become truly a stand-alone asset class.

 

 

Real GDP (forecast), % change yoy

Advanced economies

Developing Asia

Take a closer look at the regions

 

Latin America

Latin America’s economy has proven to be fairly resilient - after a contraction in 2009, the sector’s real growth has bounced back to pre-crisis levels with GDP projected to increase by around 6% in 2010. Economic growth has proven to be self-sustaining supported by strong domestic demand in Brazil, Chile and Peru with positive spill-over into the region’s other economies through trade channels. The region’s commodity-exporting economies have notably benefitted from the rapid rebound in the external demand and rise in commodity prices. The region to a significant degree has profited from the low interest rate environment in the advanced economies.

Eastern Europe/CIS

Although Eastern European and CIS countries have experienced the most severe downturn compared to the other Emerging Market regions, in 2010 they already returned to growth. Owing to the favourable external environment and the rebound in commodity markets with prices soaring to two year highs, the growth of the CIS countries’ economies is expected to accelerate in 2011. CIS countries public finance position has remained relatively strong compared to the regions, despite deterioration of the fiscal balance during the downturn.

Asia Pacific

Asia Pacific is one of the fastest growing regions in the Emerging Market bond arena, owing its economic resiliency to the exceptionally low level of external debt and robust balance of payment position. Improvements in the economies of the regions fiscal and debt position amid growing fiscal concerns in advanced economies ensures easy access to external financing. Domestic demand in the world’s most populated region is about to benefit from the continuing income convergence and should foster further re-balancing of the region’s economy towards a more sustainable growth pace. The region’s economy is projected to expand by 9.4% in 2010, mainly owing to robust growth in China and India.

Middle East

With a historically strong external standing and sound public finance has helped the Middle East to successfully weather the global financial crisis. The region mainly owes its prosperity to oil exports, boosted by increasing petroleum demand and oil prices staying at elevated levels. Despite the global downturn, economic growth has remained on track and the region is projected to expand at the pre-crisis levels in 2011. Among oil exporting countries, Qatar has showed the strongest performance with GDP expected to grow by 16% y-o-y in 2010 and by 18.6% in 2011.

Africa

Wide disparities among African countries and their economic performance have resulted in the biased growth prospects for the whole region. Income inequality, unacceptably high unemployment rates, the lack of necessary infrastructure and the spreading of disease have held back the region from more rapid economic development. The South African economy is an outlier among the region’s other countries with a more sustainable fiscal policy and improving domestic demand. Supported by an increase in industrial production, the economy has rebounded more rapidly than expected and is projected to expand by 3% y-o-y in 2010, accelerating to 3.5% y-o-y in 2011.

 

 WIOF Global Emerging Market Bond Fund = Opportunity beckons

The fund is managed by Citadele Asset Management (Citadele AM), previously JSC Parex Asset Management, which is the asset management arm of Citadele banka, one of the leading financial groups in the Baltic States. The investment team comprises portfolio manager Andris Kotans, CFA, Senior Fund Manager at Citadele AM who is supported by three dedicated analysts.

 

Andris and his team follow a mixture of top-down and bottom-up approaches and identifies potentially undervalued securities in hard currency space as well as identifying relatively undervalued local currencies.  With his flexible, competent and qualified team, which is open for communication, they use a systematic investment process based both on quantitative models and qualitative judgement leading to the optimal portfolio construction of corporate and sovereign debt securities.

Exposure to the Emerging Market bonds belongs to each globally diversified investment portfolio. Should the investment risk be sufficiently spread, the WIOF Global Emerging Market Bond Fund should not be missing from a client’s investment portfolio. The fund itself is one of the more risky funds but in a complete portfolio it has a role that cannot be substituted. Using the WIOF Global Emerging Market Bond Fund, you can significantly increase your portfolio performance.