Fund managers have been using the strength of the US dollar to access emerging market debt, according to Money Management research.
Many managers had predicted that the Federal Reserve would begin tapering sooner rather than later, although now analysts are suggesting it may not happen until next year.
As Ben Bernanke’s tenure as Fed chairman comes to an end – his second term ends 31 January 2014, but his term as a board member ends in 2020 – all eyes remain on the Fed, waiting for an announcement to when tapering will begin.
For months, the industry has been speculating when the process will begin, and talk of tapering has led to the sell-off seen in emerging market currencies over the past few months. As the dollar has been getting stronger, emerging markets have been struggling, but in the meantime, some managers have been flocking to buy emerging market debt.
Investec fixed income and currency strategist, Thanos Papasavvas, said he is finding “pockets of safety” in emerging market debt, particularly in Singapore or the Czech Republic. “It is very important to us in the way we manage, to not allocate too much risk or put a too high position in any strong conviction trades,” he said.
Elsewhere, Iain Stealey, co-manager of the £629m JP Morgan Strategic Bond fund, said he is beginning to look into emerging market debt. “It is definitely on our radar. It is where we think value will be over the next few months given the weakness we have seen over the past few months or so,” he said.