M&G Panoramic Outlook: Quasi-Sovereigns in Emerging Markets, by Charles De Quinsonas

It has been quite an eventful year for emerging markets. The fall in oil and commodity prices, the prospect of higher interest rates in the US, the corruption scandal in Brazil and of course the growth slowdown in China have all contributed to increased uncertainty for the asset class. Naturally this uncertainty has impacted performance, weighing down on returns of both hard and local currency debt. For example, despite staging a strong rally in October, EM local currency bonds in US Dollar terms are still in negative territory by about 10% in 2015. In hard currencies, even though the headline JP Morgan EMBI Global Diversified Index is up close to 3% this year (also in US Dollars), dispersion in returns have been significant with for example Russian bonds up more than 20% while Brazil has fallen almost 10%.

Performance aside, even more interestingly and unknown to many investors has been the growth behind the scenes of a rather unique segment of the emerging markets debt world: quasi sovereign bonds. Quasi sovereign bonds are bonds issued by companies who are in majority owned by governments. In this regard they exhibit both features from the corporate as well as the government universe. Their growth has been quite phenomenal in recent times, with gross issuance going from $40 billion in 2005 to over $180 billion in 2014. In addition, the asset class also boasts one of the highest Sharpe ratios in emerging markets.

In this edition of the M&G Panoramic Outlook, Charles de Quinsonas – Deputy Fund manager on the M&G Emerging Markets Bond Fund, explains in more details the intricacies of this emerging asset class and the opportunities that it presents.

Please click here for the M&G Panoramic Outlook web page.

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

Pierre Chartres

Job Title: Investment Director

Specialist Subjects: Macro economics and European credit

Likes: Football, skiing, golf, Skysports (everything except the F1 stuff), French Basque Country

Heroes: Chesley Sullenberger, Felix Baumgartner

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