Victor Rodriguez is Senior Portfolio Manager of Emerging Market Debt for NN Investment Partners (formerly ING IM) and confesses that there are so many changes in emerging economies that some of his answers may vary over the short term. What remains unchanged is the attractiveness of these markets, which for the same rating and duration allow greater yield. "There is no better market" he declares, although he is aware of the problem that volatility and any small lack of liquidity may involve. As this market works almost entirely in USD, some companies who are not exporters are also at risk from fluctuations in exchange rates. "When the value of the dollar is rising, it is better to stick with exporters. You can only pick the best of the best."
Korea’s stability can make it attractive at certain times, yet it currently doesn’t play in its favor. However, when it comes to China’s growth forecasts, the Atlanta based expert estimates GDP growth at 6.8% or more by the end of this year, and 6.5% for 2016, making that country his major option, as he believes that even if there are changes, the real estate sector can bring long-term value, and economic development in the country will improve in the second half of this year. His vision for Indonesia is also positive thanks to the improving economy and growth-forecasts, likewise for some banks in Hong Kong and Singapore; he sets India aside however, as he considers that, although it will continue to grow, the opportunities it offers are no longer as attractive.
In Latin America, he stresses his preference for Peru, which he justifies by his opinion that there are good opportunities for finding value in specific companies within the banking and mining sectors, although the country's growth is slowing down; as regards Chile and Colombia, the portfolio manager believes that there are only isolated opportunities in some companies, for example in the Utilities industry, while insisting that there are no attractive sectors, but specific companies which are. Another country that is growing and will continue to grow, albeit more slowly, is Mexico, where you can also find value in certain corporations, although, being a country which has been affected by falling crude oil prices, it previously offered some very good potential investments and now those opportunities have been reduced.
We must remain alert to new opportunities that will come from frontier markets, as the expert expects Mozambique, Vietnam, and Sri Lanka to follow the path of growth.
As regards the options in other regions of the world, Rodriguez believes that, although there is still value in Russia, it is no longer as attractive as it was a few months ago, even though it seems that the country begins to improve, with the Ukrainian crisis taking a turn for the better, and the rising oil prices; he is more optimistic about Kazakhstan, as he believes that it currently already has an interesting valuation, and shall present good opportunities towards the end of the year. He also confirms that it is possible to find some good options in South Africa, which does not happen with the Middle East region, as local investors themselves have placed their own assets there, pushing spreads down.
The flow of capital into fixed income is increasing and Victor Rodriguez expects the trend to continue. "Everyone is looking for spread products because you cannot concentrate the entire portfolio on equities. In addition, the wealth of emerging markets has grown, as has its investment in debt. Insurance companies continue to invest more, and more in fixed income, and are aware that they must continue to increase their commitment, and pension plans should definitely increase their placement in emerging fixed income. "
With regard to oil, the Lead Portfolio Manager of Corporate Debt for IP NN Emerging Markets Debt team believes that a deficit situation will be reached by the fourth quarter, since OPEC is stable in its production, and will remain roughly at current levels unless Libya starts to produce, and US production will peak in April-May, and then go down. According to the expert, the end of this quarter will still be good time to invest in companies involved in oil, with price estimated at US$65 a barrel for WTI by the end of 2015 and US$70 by the end of 2016. "There is no doubt that oil will rise, although not excessively. We will not see the barrel at US$100, because if prices started climbing very quickly, greater supplies would be released into the market. "
"The FED will not raise rates as early as people expect. If oil stays along the aforementioned lines and there is no inflation, the other central banks will increase liquidity and the dollar will rise, and exports and job creation in America will both fall," says Rodriguez, who concludes by predicting that “the FED will not raise rates. If it does so, it will be by 25 basis points, and not before September."
Victor Rodriguez is Head for NN IP’s Emerging Markets Corporate Debt strategy. The team has offices and analysts in The Hague, Atlanta, and Singapore. EMD Group’s Total assets (sovereign, local, and corporate included) stand at 7 billion dollars. Rodriguez has over 25 years’ experience in emerging markets, corporate bonds, and investment banking. Before joining ING in 2003, he worked in GMA Partners, Wachovia Securities, and Prudential Capital. He holds a Cornell University A.B. degree, and an Emory University MBA.