Broadening credit opportunities through emerging market corporate debt

Broadening credit opportunities through emerging market corporate debt

03-07-2020 | Entrevista
It is a misperception that emerging market companies are small, risky and single-focused. The debt issued by these businesses represents an asset class that offers access to some world-class companies.
  • Reinout Schapers
    Director Emerging & Global Credit

Speed read:

  • The hard-currency EM corporate debt market opportunity is sizeable
  • Investors benefit from access to large, diversified world-class companies…
  •  …and the low correlation between developed and EM credit segments

How do you approach investing in emerging market credits?

“The way we approach emerging market credits is pretty similar to how we approach high yield and global credit in general. In other words, we evaluate individual credits, which differs from the typical approach of starting from a country perspective. So, we look at individual credits and employ a thorough bottom-up selection process. We then combine this with our top-down view, which reflects our views on credit markets as a whole, how emerging markets fit into this picture, what our expectations are, and thus how much risk we want to take. For Robeco, our emerging markets strategy is therefore complementary to our holdings in developed market credits.”

This is an extensive market, spread across geographies. How are you able to maintain bottom-up coverage in all emerging markets?

“We don't necessarily cover all emerging markets. Our approach is to stick to the higher-quality countries, where there is a broad corporate market which provides relatively easy access to these economies. For an emerging corporates fund – at least the way we run it – this also means sticking to countries where we think it is responsible for corporates to issue dollar-denominated debt. So, you narrow it down to around 15 countries worldwide – which in itself is already a choice to simply not cover everything.”

Manténgase informado sobre los mercados emergentes con las actualizaciones mensuales por correo
Manténgase informado sobre los mercados emergentes con las actualizaciones mensuales por correo

What’s the interplay between corporate risk and country risk in emerging markets, and how do you assess and manage these considerations?

“In principle, the corporate analysis comes first. But in emerging markets, corporate risk is influenced by the country. This influence has multiple facets, one of which is currency. If you borrow using dollar-denominated debt and you operate in local currency, then large moves in the currency will have an impact on your business. Another facet is changing policies: policymaking in emerging markets tends to be a little more volatile than in developed markets, and that has an impact on the business. Also, corporate governance standards are usually lower. And then, of course, the underlying volatility of the country is reflected in the performance of corporate debt. So, we do take all of this into account.”

“Above all, it is extremely important to us that a company is healthy in itself. We generally stay away from highly leveraged companies that rely on implied government support. We want solid businesses. It's really the business that makes us decide we want to be in a certain country, not the other way around. We wouldn’t simply add, say, a basket of Indian names because we like the current dynamics in India. Our selection criteria require the issuers to be good companies. And that is the very basic principle of the fund.”

“It's important that the strategy is slightly more conservative than that of many of our peers. We place a lot of emphasis on capital preservation and we've never had a default in the portfolio.”

With globalization, there is a blurring of lines between emerging market and developed market activity. How do you take this into account in your emerging markets credit selection?

“We've seen in the last 10, 15 years that emerging market and developed market companies have moved closer to each other. Developed market corporations have invested heavily into emerging markets because that is where the growth is. So you see US businesses moving into emerging markets, but also European companies that have large exposures in, for example, Latin America. At the same time you see the larger emerging market companies wanting to diversify away from being a purely single-country business, and they venture into multiple emerging markets, and also into developed markets.”

“It is a given that the lines are blurring. If you have a developed market company with a large revenue and earnings base in emerging markets, why should we see that as less emerging than a business which is domiciled in an emerging country, but that derives, say, over 50% of its revenues from developed markets. So, where the emerging market bond index looks at country of domicile, we look simply at what the earnings sources are. And that to us determines whether we see it as emerging or developed credit.”

How would an emerging markets strategy fit into a global portfolio? Why would an investor need a specific pocket for emerging markets?

“There are two important reasons, with one being diversification. By moving into emerging corporates, you broaden your opportunity set to an asset class that gives access to some world-class companies. It is a misperception that emerging market companies are small, risky, single-focus companies. Yes, they're still there. But in general, these are large, well-diversified, well-run companies. And it is also the way to go if you want emerging market exposure in hard currency, given that fewer better-quality sovereigns are now issuing dollar-denominated debt.”

“The second reason is the lower correlation. While credit markets are correlated, the correlation between developed markets and emerging market corporates is much lower. And there's good reason for that: the economic cycle in emerging markets can be completely disconnected from the European or the US economy from time to time.”

What is your outlook for emerging market credits?

“We’re quite constructive on all credit markets, essentially. Despite the recent rally, markets remain cheap. Global savings rates remain high and there is a massive amount of support from governments and especially the Western central banks, which means that there is demand for credit. And it also means that there is demand for emerging credit. Given the fact that there are some really good companies being offered at very attractive spreads, I think emerging corporates is a market that has sufficient room to perform very well, for at least for the next 12 months.”
This is an extract from the interview.
Download the full document

Información importante

Los Fondos Robeco Capital Growth no han sido inscritos conforme a la Ley de sociedades de inversión de Estados Unidos (United States Investment Company Act) de 1940, en su versión en vigor, ni conforme a la Ley de valores de Estados Unidos (United States Securities Act) de 1933, en su versión en vigor. Ninguna de las acciones puede ser ofrecida o vendida, directa o indirectamente, en los Estados Unidos ni a ninguna Persona estadounidense en el sentido de la Regulation S promulgada en virtud de la Ley de Valores de 1933, en su versión en vigor (en lo sucesivo, la “Ley de Valores”)). Asimismo, Robeco Institutional Asset Management B.V. (Robeco) no presta servicios de asesoramiento de inversión, ni da a entender que puede ofrecer este tipo de servicios, en los Estados Unidos ni a ninguna Persona estadounidense (en el sentido de la Regulation S promulgada en virtud de la Ley de Valores).

Este sitio Web está únicamente destinado a su uso por Personas no estadounidenses fuera de Estados Unidos (en el sentido de la Regulation S promulgada en virtud de la Ley de Valores) que sean inversores profesionales o fiduciarios profesionales que representen a dichos inversores que no sean Personas estadounidenses. Al hacer clic en el botón “Acepto” que se encuentra en el aviso sobre descargo de responsabilidad de nuestro sitio Web y acceder a la información que se encuentra en dicho sitio, incluidos sus subdominios, usted confirma y acepta lo siguiente: (i) que ha leído, comprendido y aceptado el presente aviso legal, (ii) que se ha informado de las restricciones legales aplicables y que, al acceder a la información contenida en este sitio Web, manifiesta que no infringe, ni provocará que Robeco o alguna de sus entidades o emisores vinculados infrinjan, ninguna ley aplicable, por lo que usted está legalmente autorizado a acceder a dicha información, en su propio nombre y en representación de sus clientes de asesoramiento de inversión, en su caso, (iii) que usted comprende y acepta que determinada información contenida en el presente documento se refiere a valores que no han sido inscritos en virtud de la Ley de Valores, y que solo pueden venderse u ofrecerse fuera de Estados Unidos y únicamente por cuenta o en beneficio de Personas no estadounidenses (en el sentido de la Regulation S promulgada en virtud de la Ley de Valores), (iv) que usted es, o actúa como asesor de inversión discrecional en representación de, una Persona no estadounidense (en el sentido de la Regulation S promulgada en virtud de la Ley de Valores) situada fuera de los Estados Unidos y (v) que usted es, o actúa como asesor de inversión discrecional en representación de, un inversión profesional no minorista. El acceso a este sitio Web ha sido limitado, de manera que no constituya intento de venta dirigida (según se define este concepto en la Regulation S promulgada en virtud de la Ley de Valores) en Estados Unidos, y que no pueda entenderse que a través del mismo Robeco dé a entender al público estadounidense en general que ofrece servicios de asesoramiento de inversión. Nada de lo aquí señalado constituye una oferta de venta de valores o la promoción de una oferta de compra de valores en ninguna jurisdicción. Nos reservamos el derecho a denegar acceso a cualquier visitante, incluidos, a título únicamente ilustrativo, aquellos visitantes con direcciones IP ubicadas en Estados Unidos.

Este sitio Web ha sido cuidadosamente elaborado por Robeco. La información de esta publicación proviene de fuentes que son consideradas fiables. Robeco no es responsable de la exactitud o de la exhaustividad de los hechos, opiniones, expectativas y resultados referidos en la misma. Aunque en la elaboración de este sitio Web se ha extremado la precaución, no aceptamos responsabilidad alguna por los daños de ningún tipo que se deriven de una información incorrecta o incompleta. El presente sitio Web podrá sufrir cambios sin previo aviso. El valor de las inversiones puede fluctuar. Rendimientos anteriores no son garantía de resultados futuros. Si la divisa en que se expresa el rendimiento pasado difiere de la divisa del país en que usted reside, tenga en cuenta que el rendimiento mostrado podría aumentar o disminuir al convertirlo a su divisa local debido a las fluctuaciones de los tipos de cambio. Para inversores profesionales únicamente. Prohibida su comunicación al público en general.

No estoy de acuerdo