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  2. Emerging debt
Emerging markets

Emerging debt

China’s transition boosts emerging markets

Emerging debt
China’s transition boosts emerging debt

Emerging market fundamentals are improving, which can provide insulation against the prospects of rising global protectionism and create opportunities in emerging debt

The rise in the value of emerging markets' exports has been supported by the rise in commodity prices, which in turn is due to a correction in the oversupply in the oil market and some metals markets.
China’s economy looks healthier than a year ago with exports, industrial production and investment getting stronger. Above all, deflation in China has reversed. As a result of all this, Chinese companies are able to import and buy more from other emerging countries.
Emerging market growth is strengthening across many countries and sectors. If this continues, retail sales can recover.
China in focus

We are underweight in the chinese real estate sector as we think that yields are too low to compensate sufficiently for the risks stemming from the potential for renewed government intervention and high land bank costs in land auctions. Our appetite for financials is also low, outside of the Big Four national banks, given that more aggressive lending practices at small and medium-sized banks could lead to negative headlines for the sector.

In contrast, we are overweight in China’s commodity producers in both the oil & gas and the metals & mining sectors. We notably favour strategically important state-owned enterprises (SOEs), which we expect to eventually benefit from the SOE reform. We also find attractive opportunities in technology, media and telecom companies whose activity is being spurred on by booming domestic consumption, such as e-commerce. This sector is enjoying strong cash flow generation, continued revenue growth and strong credit metrics, including very low leverage and strong interest coverage.


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