Resilience in EMD creating opportunities, says Pioneer’s Yerlan Syzdykov

Yerlan Syzdykov, head of Emerging Markets Bond & High Yield at Pioneer Investments, has said that resilience in EMD markets are creating opportunities for investors.

Syzdykov noted that there is a change in the nature of the asset class.

“EM corporate debt was 3.5% of the total of EU and US corporate debt in 1998. Today, it’s over 17%. At $1trn, emerging markets high yield is as large as US high yield.”

Credit quality has improved. Debt to GDP ratios have improved. And public finances are relatively stronger than in many developed markets, he added.

And changes to the investor base lay the ground for medium to long term support, he said.

2Investors have doubled their allocation to EMD in the last 5 years, though it still remains small compared to the corresponding EM share of GDP and global bond markets.'”

“‘We are entering a new phase of development in emerging markets, and investing in the asset class requires a new way of thinking. For us, the key lies in selection as different dynamics at country and sector level play a material role in the performance of the asset class.'”

“‘Understanding the different challenges that Emerging Markets are facing, monitoring the metrics to identify a country’s domestic and external risk, and tracking the measures and reforms these economies are implementing, are of paramount importance in managing the opportunity and risks for investing in EMs.”

A number of key factors are driving change, Syzdykov (pictured) goes on to say.

“Structural reforms are, today, on the agenda for many EM countries: the weakening of cyclical factors supporting the huge inflows of the past few years are stimulating EM countries to devise more sustainable growth models.”

“New fronts of geopolitical tensions are opening, and electoral outcomes in a number of EM countries may have material effects on financial markets.”

“The ability of EMs to generate growth is sensitive to the role of China in the global macroeconomic framework. China’s slowdown is partly engineered to rein in credit and advance reforms while ensuring a gradual transition to a more balanced and sustainable growth model.”

“Flow normalization should follow the Fed’s forecast exit from Quantitative Easing, allowing selective opportunities across a range of sovereign and corporate issuers”

All together, these factors influencing EMD markets and the maturing of such markets mean that it is becomign seen as a mainstream asset class. And amid the search for yield, investors can find a “compelling buying opportunity,” he said.


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