London & Capital Asset Management announced that it is increasing its allocation to emerging market sovereign debt within its global bond portfolios.
“We have been bullish about this asset class for some time – and feel now is the right time to increase our holdings further,” underlines Sanjay Joshi, head of global bonds at London & Capital, which has USD1.6 billion under management.
The company has upped its allocation through Ashmore Investment Management. “We have invested in Ashmore previously, and their strategy complements our diversified approach,” Joshi explains.
“From a macroeconomic perspective, we remain positive about emerging markets due to continuing strong global economic expansion, benign global inflationary expectations and the measured, incremental approach of the US Federal Reserve to monetary tightening,” he says. “This embeds a stable scenario for the EM asset class as a whole.”
The positive global assessment is buttressed by a favourable outlook at the country-specific level.
“Key emerging market nations are pursuing disciplined fiscal and monetary policies, in tandem with structural reform at the microeconomic level. Taken together, such policies encourage currency strength and improve foreign debt-servicing capabilities.”
In this context, Joshi believes that the credit upgrade cycle for EM debt still has a further 12 to 18 months to run – indicating that there is additional value to extract in both absolute terms as well as relative to other fixed income asset classes.
The increasing quality of EM sovereign debt also reduces the asset class’ volatility – and low volatility is a pre-requisite for London & Capital’s absolute returns, capital protective investment strategy.
Moving ahead, London & Capital continues to source new investment opportunities and is currently looking at further openings in the EM debt, distressed Asian bonds and high yield debt universes.