-- JPMorgan Asset Management, Van Eck Associates Corp. and Vontobel Asset Management are betting that the billions of dollars pulled from emerging markets will start coming back as US borrowing costs drop.Debt denominated in local currencies should advance the most, they say, as emerging-market central banks look to follow the Federal Reserve’s path. Longer-dated bonds are seen leading the rally.
Growth in the developing world remains strong, according to JPMorgan Chase & Co., which recommended an overweight position in EM local-currency debt last week. By then, the asset class lagged the rally in Treasuries by 68 basis points since late May as US swap markets priced in easier policy, analysts led by Saad Siddiqui wrote.
JPMorgan’s Bareau, who manages about $50 billion in emerging-market fixed income, favors debt from South Africa, where political uncertainty has diminished after a surprise election result in May.Beleaguered Asian currencies stand to gain as the Bank of Japan bucks the global trend, raising interest rates and boosting the yen. The hike sparked an unwinding of carry trades, in which investors borrow in low-yielding currencies like the yen to buy others with high interest rates.
In Mexico, the new legislature — controlled by the ruling party — is passing constitutional changes that critics say will erode the government’s checks and balances. Some money managers are anticipating an even more thorough reallocation of assets to follow after the US elections in November.