Deutsche Bank PWM strikes EM bonds off high conviction trade list

Deutsche Bank Private Wealth Management’s global investment committee removed emerging markets bonds from its high conviction list last month after funds active in the area took in over twice as many new assets in February as any month since 2009.

The committee had initiated the emerging markets bonds theme almost exactly one year ago, and exited it at a profit of about 4.7% on local currency late last month.

The hard currency alternative has returned 3% since the bank’s global investment committee started monitoring it on 30 January this year.

Emerging market bond funds took in about $3.3bn in February and DBPWM’s April Investment Insights report noted: “Emerging markets bonds has now become a crowded trade, and while further gains are possible, most of the favorable story here is probably now behind us.

“The idea had registered good performance since introduction, and many fundamental factors remain positive, but strong levels of inflows into this asset class, together with evidence that some emerging market central banks are losing their appetite for further monetary easing, makes us increasingly cautious and unwilling to give this idea a ‘high conviction’ tag.”

Apart from the high level of inflows witnessed in February, EM bond funds have taken in more than $1bn in only two of the 38 months since 2009, according to Emerging Portfolio Fund Research.

“We are concerned by recent large fund inflows into this asset class, and by evidence that some emerging markets central banks have a diminishing appetite for a further loosening of monetary policy. Future, more specific, high conviction Ideas on this asset class are however possible,” wrote the wealth management unit of Germany’s largest bank.

It also noted the asset class suffered volatility last year, and a setback despite inflows, last month.

“The outlook for emerging market bonds remains generally good and, over the longer term, emerging local bond markets are likely to continue to attract capital inflows, as these markets deepen and broaden. But, with this high conviction idea having run for a year, we think that now would be a good time to exit and realise any gains.”

In its place, Deutsche Bank’s unit added another ‘high conviction’ idea – so-called wallet commerce technology that allows bank customers to use their mobile phones as an ‘electronic wallet’.

Players include Visa with payWave, MasterCard with PayPass, and the ubiquitous Apple with EasyPay.

The bank’s Larry Adam wrote: “Starbucks already accepts mobile payments but many major retailers do not. However, we expect a growing trend toward mobile payment adoption among retailers. The speed of consumer acceptance of the new technology is also difficult to predict, but the success of many other Smartphone applications should be a harbinger.”



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