Pioneer: Search for yield will continue favouring EM bonds
With interest rates expected to remain low for a long time, emerging markets (EM) bonds will continue to play a major role in the search for yield, according to the October report by Pioneer Investments’ multi-asset division, headed by Matteo Germano.
The asset management arm of Italy’s Unicredit recommends however a selective approach to EM bonds, as different countries are at different phases of their development process. Pioneer favours India and China, as it believes the structural transition in these countries “is progressing well”.
The asset manager highlights the EM macroeconomic picture has improved since the beginning of the year, thanks to the rebound in commodity prices, which has favoured commodity exporters, favourable fiscal policies and the postponement of the Fed tightening process. Going into 2017, fiscal levers will play a key role among policy tools, especially for countries with lower fiscal fragility.
“We think countries with savings, sound regulatory framework and fiscal efficiency will be able to perform better in the EM space. Asia is well positioned here, and China, Thailand and the Philippines were able to deliver a fiscal impulse in 2016,” the report reads.
“Recent developments suggest that growth momentum in China has been holding up relatively well, while there are increasing signs that policymakers are accelerating their efforts in structural measures. The rebalancing of the economy is also proceeding, with consumption being solid and resources gradually moving from industry to services.”
“As a result, we are slightly more constructive about the outlook for China over the next couple of years, although we still expect growth to be lower,” it adds.