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Investors who are thinking of putting their money in local government emerging market bonds should proceed with caution, according to Baronworth Investment Services.

Colin Jackson, director of Essex-based Baronworth Investment Services, aired his fears in response to a report by fund management group T Rowe Price, which said the recent rise in inflation in most emerging market countries has led to a re-pricing of their local fixed income markets, representing a good entry opportunity for long-term investors.

Mr Jackson said: “I would not want to invest my clients’ money in Russia, for example.

“You need to ask yourself

how secure are the governments in these countries? My fears are more to do with the fundamentals and for now I think it is too risky. Although it is hard to give a proper assessment I think it is clearly one for the high-risk investor.”

Ian Kelson, head of global fixed income for T Rowe Price, and Mike Cornelius, and emerging markets bond strategy portfolio manager, said the bonds in countries such as China, Russia, India and Indonesia have several performance drivers. These include their high level of income, the potential for capital gains if interest rates start to fall and the potential for capital gains from currency appreciation against the U.S. dollar.

T Rowe Price added that it thinks the emerging markets’ lower reliance on the external debt market and greater use of local market issuance – caused by the rise in commodity, agriculture and metal prices, which has bumped up foreign exchange reserves – will transform local currency debt markets as different yield maturity issues will lead to the development of full yield curves.