HSBC Global Asset Management is boosting holdings of foreign-currency debt in emerging markets after concern efforts to contain Europe’s debt crisis will fail sent yields to a five-month high.
HSBC’s Total Return Fund (HTRAX:US) has increased net investments in emerging market debt and currencies to 76 percent at the end of May from 45 percent at the start of April, Christian Deseglise, the managing director who helps oversee $426 billion at HSBC Global Asset Management for the Americas, said in an interview yesterday. The bank favors quasi-sovereign and corporate debt, he said.
Dollar-denominated emerging-market bonds declined last month for the first time since November on concern that the deepening debt crisis in Europe may slow global growth. The average yields investors demand to hold emerging-market bonds instead of U.S. Treasuries widened to a five-month high of 441 basis points, or 4.41 percentage points, on June 1, according to JPMorgan Chase & Co.’s EMBI Global Index.
“We think a lot of the correction is behind us and the debt market overreacted,” Deseglise said in an interview at Bloomberg’s headquarters in New York. “Getting more than 400 basis points in an asset class which is investment-grade, which is improving in terms of quality, seems to us like a good trade.”
Among emerging market assets, foreign-currency bonds are best positioned to protect investors from the European turmoil because they are free of the foreign-exchange risks, according to Pablo Goldberg, head of global emerging markets research at HSBC Securities (USA) Inc.
“In the distribution of risks presented by the different asset classes, investors need to ask what are my potential downside in a bad scenario in equities, foreign exchange, local bonds and hard currency,” Goldberg said in the interview. “The answer is, you’re better off protected with hard currency emerging-market debt.”
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