Emerging markets:
Move when others hesitate

As sustainability-minded equity investors are looking beyond their home turf, the global importance of environmental, social and governance (ESG) standards is rising. But while their significance is relatively high in the “west”, emerging-markets companies have some catching up to, according to Lara Kesterton, Vontobel’s Head of mtx ESG Research.

Overall CLO and loan performance have exceeded our expectations, though there are still plenty of headwinds for the market, chief among which is the prospect of further lockdowns and more economic disruption as Europe battles a second wave of COVID-19 cases.

After a perfect pandemic storm, the US Federal Reserve and other supertankers are filling their holds with strange cargo. This may seem like the age of indiscriminate buying – hardly a strategy many investors find alluring. Meanwhile, often-shunned merchandise from emerging markets may look promising to a discerning eye.

Overall, in our view there may be some temporary volatility ahead which investors can try to sidestep or even take advantage of, but it’s probably not worth trying to be too cute as our medium term outlook is still constructive.

Is EM the next asset class to go passive? The answer is «no», according to Dr. Marc-André Göricke, Senior Consultant at alpha portfolio advisors. In this viewpoint, he provides empirical evidence on the benefits of an active approach for EM assets.

This video explains how TwentyFour’s unique ESG integration process works, and how our purpose-built relative value tool, Observatory, allows our portfolio managers to monitor bond issuers’ ESG credentials on a daily basis.

This video explains how CLOs are structured, how the process works for investors and what protections are in place for bondholders.

The Bank’s ability to dampen market volatility has certainly been a comfort to fixed income investors; over the last month £ IG spreads have moved in a range of just 4bp and ended tighter than they started, which compares rather favourably to the 5% peak-to-trough swing in GBP-USD over the same period.

A cut by the Fed or the BoE from here would mean negative rates, while the ECB already has its deposit rate deeply negative at -0.5%.