The emerging markets have returned to dynamic growth in 2017. This is partly due to the distinct price gains for many commodities (such as gold, silver, copper or sugar) that were seen in 2016. In addition, the implementation of structural reforms is now getting traction. Innovative product ideas as well as infrastructure projects are injecting additional dynamism into the markets.
The MainFirst Emerging Markets Corporate Bond Fund Balanced and MainFirst Emerging Markets Credit Opportunities Fund, which are managed by the three fund managers Cornel Bruhin, Dorothea Fröhlich and Thomas Rutz, are investing in these developments. They are monitoring both macroeconomic developments in emerging markets, including the ‘frontier’ markets, as well as the growth of a selection of frequently undervalued companies. At this time, their focus is above all on Latin America, where valuations remain low and are yet to reflect anticipated growth.
Peru, for example, is a low-wage country in the area of commodities, enabling numerous companies to show potential for strong performance. Should commodity prices remain at current levels or increase only marginally, the rating agencies – which currently underestimate the bonds – will have to increase their ratings. For the affected producers, this would result in further catch-up potential. Together with the government under Kuczynski, who is considered pro-business, plans are also underway to get much-needed infrastructure projects off the ground. These include the expansion of the main airport and the subway network in Lima. Other planned projects include the upgrading of the road network, bridge construction and the expansion of ports. Together, these projects are forecast to contribute to growth of 4.1 %.
Due to the Macri government’s new course of reforms, Argentina is once again significantly gaining strength in the international capital markets after 15 years of suspension. Many companies are planning new investments, particularly in infrastructure. According to the IMF and the World Bank, economic growth will be positive again from 2017 on. Moreover, the Argentine bond universe is expected to continue to grow rapidly.
Strong positive signals are also coming from Brazil, the largest economy in Latin America. Despite the political crisis around Michel Temer and the various corruption scandals, economic lead indicators continue to point towards economic recovery.
To fully benefit from these developments, the fund managers Cornel Bruhin, Dorothea Fröhlich and Thomas Rutz are investing primarily in high-yield hard currency bonds with high return potential. Of particular interest are bonds in the commodity and energy sectors. Promising frontier markets and undervalued second-tier companies are also in focus. Security selection is based on detailed top-down and bottom-up analyses, including the assessment of credit ratings, detailed elaboration of yield differentials and the evaluation of companies. This is accompanied by strict risk management with profit and stop/loss targets – all with the objective of securing an attractive risk return profile for investors.