Neuberger Berman Emerging Markets Debt Team Sees Moderate Economic Growth, Relative Value in 2014 for EM Markets
NEW YORK, Aug. 19, 2013 /PRNewswire/ -- Emerging markets debt (EMD) portfolio managers and strategists at Neuberger Berman, one of the world's leading employee-controlled money managers, say that contrary to some recent market views, they believe growth in emerging markets economies is likely to improve and the financing needs of sovereign and corporate issuers are relatively moderate, potentially limiting supply, supporting credit fundamentals and spreads, and providing a constructive environment for bonds. The EMD team's outlook for their sector in 2013 and beyond is available at https://www.nb.com/campaigns/emd/home_us.html.
While the team's outlook is cautious for the second half of 2013, Neuberger Berman's EMD managers and strategists anticipate that overall emerging market (EM) economies could achieve growth of over 5% this year – after first-half growth of 4.8% and 2012 growth of 5.2%. In 2014, the team believes that EM economic growth could exceed 6%.
"We believe that investors have made too much of slowing growth in emerging markets," said Rob Drijkoningen, co-head of the Neuberger Berman EMD team. Gorky Urquieta, co-head, adds "We expect some economic resurgence, supported by global recovery, particularly in the developed markets, which should partially offset China's slowdown, even as EM policymakers gradually scale back monetary support."
Overall, EMD's recent underperformance relative to U.S. spread products and European peripheral sovereigns has improved the relative value of emerging markets debt, according to the Neuberger Berman team, which believes sovereign credit spreads are attractive compared with historical levels and current expected default rates. Corporate debt should largely mirror sovereign performance, but carry some risk due to recent outperformance over sovereigns.
Within the EM corporate sector, high yield issues offer an additional spread cushion in the event of a U.S. Treasury sell-off, according to the Neuberger Berman team. Local currency debt is the EMD team's preferred market segment through year-end 2013. Real rates have become more positive as inflation and inflation expectations remain contained, and EM central banks are mostly neutral to accommodative, which should limit risk from U.S. interest rates. While below-potential growth is likely to be beneficial for EM local bonds, monetary shifts between EM and the U.S. and commodity weakness may hamper the currencies in which such debt has been issued.
"We believe the structural case for EMD remains strong, as investors increasingly recognize the economic significance, improved credit quality, and depth of EM economies and markets," said Urquieta. "EMD should continue to benefit from the long-term trend of inflows, as fixed income investors add exposure to emerging markets, which are structurally underrepresented in their portfolios," said Drijkoningen.
Earlier this year, 22 EMD investment professionals joined Neuberger Berman to provide investment capabilities spanning hard and local currency mandates, as well as EMD corporate bond and dedicated Asian debt strategies. The investment staff, which includes 12 portfolio managers, six credit analysts and four economists and strategists, operates from offices in the US, Europe and Asia, providing dedicated regional expertise and around-the-clock market coverage. While at a previous investment management firm, team members managed over US$16 billion in EMD assets.
About Neuberger Berman
Neuberger Berman is a private, independent, employee-controlled investment manager. It partners with institutions, advisors and individuals throughout the world to customize solutions that address their needs for income, growth and capital preservation. With more than 400 professionals focused exclusively on asset management, it offers an investment culture of independent thinking. Founded in 1939, the company provides solutions across equities, fixed income, hedge funds and private equity, and had $214 billion in assets under management as of June 30, 2013. For more information, please visit our website at www.nb.com.
This material is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness or reliability. All information is current as of the date of this material and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.
Neuberger Berman products and services may not be eligible for sale in some jurisdictions and they may not be suitable for all client types.
Investments in emerging markets entail risks which include the possibility of political or social instability, adverse changes in investment or exchange control regulations, expropriation and withholding of dividends at source. In addition, such securities may trade with less frequency and volume than securities of companies and governments of developed, stable jurisdictions. There is also a possibility that effective redemption of shares following an investor's redemption request may be delayed due to the potential illiquid nature of the assets. The legal infrastructure and accounting, auditing and reporting standards in Emerging Market Countries in which a Portfolio may invest may not provide the same degree of information to investors as would generally apply in developed countries. In particular, valuation of assets, depreciation, exchange differences, deferred taxation, contingent liabilities and consolidation may be treated differently from international accounting standards.
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