Leading specialist emerging market fund manager Ashmore Investment Management believes that local-currency and high-yield corporate debt could be the prime way for investors to take advantage of US dollar weakness and sub-prime mortgage concerns in the coming year.
Speaking in the wake of landing a $125 million local-currency debt mandate from US pension fund manager the San Bernardino County Employees’ Retirement Association, Jerome Booth, head of research at Ashmore in London, says: "We are seeing substantial institutional investor interest in local-currency emerging market debt at present. Emerging market debt is basically not a credit market any more. Emerging markets are net creditors, often with strong fiscal and current account surpluses, and low inflation. The sub-prime crisis could be the final nudge towards significant emerging market currency appreciation over the next 12 months as global central banks and others stop buying as many US and European assets.
Risk reducer
He adds: "For investors local-currency debt is a risk reducer. In particular, it can offer a natural hedge against US dollar weakness. All our central bank clients and the majority of our pension fund clients now invest in local-currency debt."
The Ashmore Local Currency Fund has returned more than 17% since inception in March 2006.