Latest news with #PinebridgeInvestments
Yahoo
16-03-2025
- Business
- Yahoo
Market Turmoil Breaks Years of Junk Debt Outperformance in EM
(Bloomberg) -- A plunge in global risk appetite is pushing emerging-market investors into higher quality dollar bonds, signaling a years-long rally in junk debt from developing nations might be at an end. Trump DEI Purge Hits Affordable Housing Groups How Britain's Most Bike-Friendly New Town Got Built Electric Construction Equipment Promises a Quiet Revolution ICE Eyes Massive California Tent Facility Amid Space Constraints The Dark Prophet of Car-Clogged Cities Money managers from Pinebridge Investments to T. Rowe Price and TCW Group are scooping up sovereign notes from countries including Mexico, Colombia and South Africa, touting their high liquidity, market access and fair valuation. Names rated around BB and BBB, they say, are well-positioned to benefit from falling US Treasury yields and withstand persistently high borrowing costs that may impact their riskier peers. 'We see more value in the BBB/BB segment in emerging markets as a result of the current market forces and a slight dip in sentiment,' said Anders Faergemann, a senior money manager at Pinebridge Investments in London. 'That means having less exposure to the cuspy high-yield segment and taking a cautious approach to credits that are highly sensitive to US Treasury volatility.' Investment grade bonds in developing nations are up 2.5% in 2025, beating high yield for the first time in five years. The outperformance is even greater for higher-quality junk debt — dollar bonds rated BB have handed an average return of 3% to investors, with Panama, Brazil and Colombia leading gains, according to data compiled on a Bloomberg index. Global markets have been whipsawed in the past few weeks by the Trump administration's shape-shifting tariff policy and growing recession risks for the world's largest economy. Uncertainty over the Ukraine peace deal and elections ranging from Germany and Canada to developing nations added more volatility. All the turmoil has forced traders to gravitate toward safe haven assets — gold has soared, while US Treasury yields have dropped. In emerging markets, that's pushed traders out of riskier credits and into higher-quality debt, which tends to be more correlated with developed assets. The possibility of countries like Morocco being raised to investment grade could drive more money into the market, further supporting performance. It's a shift from the 'close your eyes and buy anything' in high yield that earned EM investors double-digit returns in the past two years. Now, with some vulnerable nations still shut out of global capital markets, tighter spreads and ballooning interest payments on a $29 trillion pile of debt, new outperformers have emerged. Meanwhile, last year's top gainers including Ecuador, El Salvador and Argentina have fallen to among the worst performers in 2025 — with traders saying spreads in lower-rated debt aren't wide enough to reward investors anymore. JPMorgan recommended dialing down risk exposure in the distressed space last Thursday, citing concerns that historically tight valuations won't withstand a larger correction in risk assets amid signs of weakness in the US economy. The strategists reaffirmed the view this week. Attractive Value Sovereign bonds from higher quality emerging economies will be less impacted by policy shifts like the US foreign aid retrenchment, which can weigh on low income countries, said Samy Muaddi, head of emerging markets fixed income at T. Rowe Price. Even Mexico, while still facing tariff threats, has enough fiscal standing to absorb some bad news, he added. The country, one of a handful in Latin America with an investment-grade stamp, has some dollar bonds that yield more than 7%. 'That's an attractive proposition long term,' he said. 'You have the opportunity to earn the historical return on the asset class in a much safer way.' To Polina Kurdyavko, head of emerging market debt at RBC BlueBay Asset Management, sovereign spreads in Mexico and Colombia's bonds have become too wide in reaction to President Donald Trump's tariff threats. 'In these countries, valuations overcompensate you for the risk of the tariffs and potential fundamental deterioration,' Kurdyavko said. They're 'some of our core overweights because they've widened given the fear of the policies, which we feel is a little bit over done.' The extra yield investors request to hold Mexico's dollar debt stands at 332 basis points over US Treasuries, more than double the level for their similarly rated peers, according to JPMorgan & Chase data. The spread for Colombia is also wider than the average BB-rated credits in emerging markets. 'There was a lot more risk premium embedded in those credits than we realized,' said David Robbins, emerging markets investor at TCW, who also highlighted Panama as one of the top gainers year-to-date, with nearly 6% returns. 'We're starting to see spreads tighten there.' A few names rated CCC and lower have outperformed this year. Lebanon is benefitting from ongoing debt talks and a ceasefire in the Middle East. Bolivia bonds have gained due to coupon payments and signs of a potential regime change. And Suriname is living up to a big oil boom. But overall, lower-rated junk bonds now face more hurdles as risk sentiment sours. 'For 2025, the characterization within the sovereign space is de-risking out of frontiers into mainstream, preferring your kind of bellwether, traditional emerging credits,' said Muaddi. What to Watch Brazil's central bank will likely raise rates, while South Africa is expected to cut them Policymakers in Chile, Indonesia, Taiwan and Russia are all likely to keep borrowing costs unchanged Nigeria and South Africa will publish inflation data. Countries including Brazil, Peru, Colombia and Argentina will report economic activity data China's economic data for January-February is expected to show a bumpy recovery, with fixed asset investment picking up, industrial production growth easing, and retail sales slowing --With assistance from Vinícius Andrade and Selcuk Gokoluk. Nvidia Looks Past DeepSeek and Tariffs for AI's Next Chapter How America Got Hooked on H Mart How Trump's 'No Tax on Tips' Could Backfire for the Working Class College Presidents on Trump, Tuition and Universities Under Pressure As China's Birth Rate Drops, Pampered Pets Reap the Benefits ©2025 Bloomberg L.P.
Zawya
24-02-2025
- Business
- Zawya
JPMorgan's reclassification of Kuwait signals strong economic prospects
KUWAIT CITY: Kuwait is set to make a significant transition in the global financial landscape, with JPMorgan announcing its reclassification from an emerging market to a developed market. This change is part of a broader shift that also affects Qatar, with both nations scheduled to be gradually removed from JPMorgan's Emerging Markets Bond Index (EMBI). The removal process, which begins on March 31, is expected to unfold over a six-month period. Although the reclassification primarily impacts government bonds, the move is anticipated to open new avenues for foreign investment, further stabilizing and growing Kuwait's financial environment. JPMorgan's EMBI is a key reference for investors tracking emerging market bonds, which typically carry higher risk but offer potentially higher returns. As a result of the reclassification, Kuwait's bonds will no longer be included in the EMBI, a shift that will impact capital flows for investors involved in emerging market debt. As of January 31, Kuwait accounted for 0.6% of the EMBI Global Diversified Index, and the nation's exit from the index will contribute to a narrowing of bond trading opportunities in emerging markets. For Kuwait, the reclassification is seen as a step forward, reflecting its growing economic stability. Although the change will likely reduce the investor base within emerging markets, experts suggest that Kuwait will continue to attract investment from those looking beyond the EMBI's scope. Anders Faergemann, co-head of global fixed income in emerging markets at Pinebridge Investments, stated that, even without being part of the benchmark, Kuwait's economy remains a promising destination for investment due to its fiscal prudence and solid credit profile. Kuwait's reclassification aligns with a broader trend of economic and legislative reforms designed to bolster foreign investment. The country's Finance Minister, Noura Al-Fassam, recently stated that Kuwait's debt law is now in its final stages. The passage of this law is expected to enable Kuwait to issue debt for the first time since 2017, potentially raising up to $65 billion over the next 50 years. This move, which is part of a larger effort to diversify Kuwait's revenue base away from oil dependence, signals a long-term commitment to improving the country's financial infrastructure. The reclassification is also expected to draw more foreign investors into the local market, particularly in the Kuwait Stock Exchange (KSE). The KSE has been preparing for this shift by introducing new investment tools such as corporate bonds, sukuk, and index funds, all of which are likely to attract greater capital flows. Additionally, a new central counterparty (CCP) system is being developed to further enhance market liquidity and facilitate investment, particularly from foreign institutions. These reforms are poised to strengthen investor confidence in Kuwait's economic prospects and boost long-term market stability. Despite the positive outlook, Kuwait faces fiscal challenges. The government has projected a budget deficit of 6.31 billion dinars ($20.4 billion) for the fiscal year 2025-2026, a significant increase from the current year's estimated deficit of 5.6 billion dinars ($18.2 billion). This rise is partly due to lower-than-expected oil revenues, underscoring Kuwait's ongoing vulnerability to fluctuations in global oil prices. However, analysts remain optimistic that Kuwait will successfully manage its fiscal challenges, especially as the government continues to invest in infrastructure projects and diversify its economy. The country's planned debt issuance under the new law will provide additional resources for capital expenditure, which is vital for ongoing development efforts. The reclassification of Kuwait, along with Qatar, from emerging to developed market status, will likely influence broader financial trends. The removal of both nations from the EMBI is expected to reduce the amount of capital flowing into emerging markets, which may increase the yield investors demand to hold emerging market bonds compared to U.S. Treasuries. This yield spread is expected to widen by approximately 11 basis points as a result of the reclassification. Kuwait's departure from the EMBI reflects its increased financial stability, but it also suggests a shift in the global investment landscape. With Kuwait's bond market now outside the EMBI framework, it is expected to continue drawing attention from investors seeking low-risk opportunities in developed markets, especially as global demand for stable and diverse investment opportunities grows. The transition to developed market status marks a critical juncture in Kuwait's economic evolution. As the country navigates its fiscal challenges and undertakes new legislative measures, the reclassification is poised to enhance its global financial standing. With increased foreign investment, greater market liquidity, and a commitment to economic diversification, Kuwait is positioning itself for long-term growth. As foreign institutions and global funds increasingly look to invest in Kuwait, the country's financial markets will continue to expand. The reclassification not only reflects Kuwait's evolving creditworthiness but also underscores the nation's growing importance as an attractive investment hub in the Middle East. While Kuwait's removal from the EMBI will affect emerging market bond traders, the reclassification has clear long-term benefits. As Kuwait moves toward a more diversified and stable economic future, the investment community will likely examine the opportunities emerging within its borders more closely. The next few years will be critical for Kuwait as it continues to strengthen its financial framework and attract international investment.
Arab Times
23-02-2025
- Business
- Arab Times
JPMorgan's reclassification of Kuwait signals strong economic prospects
KUWAIT CITY, Feb 23: Kuwait is set to make a significant transition in the global financial landscape, with JPMorgan announcing its reclassification from an emerging market to a developed market. This change is part of a broader shift that also affects Qatar, with both nations scheduled to be gradually removed from JPMorgan's Emerging Markets Bond Index (EMBI). The removal process, which begins on March 31, is expected to unfold over a six-month period. Although the reclassification primarily impacts government bonds, the move is anticipated to open new avenues for foreign investment, further stabilizing and growing Kuwait's financial environment. JPMorgan's EMBI is a key reference for investors tracking emerging market bonds, which typically carry higher risk but offer potentially higher returns. As a result of the reclassification, Kuwait's bonds will no longer be included in the EMBI, a shift that will impact capital flows for investors involved in emerging market debt. As of January 31, Kuwait accounted for 0.6% of the EMBI Global Diversified Index, and the nation's exit from the index will contribute to a narrowing of bond trading opportunities in emerging markets. For Kuwait, the reclassification is seen as a step forward, reflecting its growing economic stability. Although the change will likely reduce the investor base within emerging markets, experts suggest that Kuwait will continue to attract investment from those looking beyond the EMBI's scope. Anders Faergemann, co-head of global fixed income in emerging markets at Pinebridge Investments, stated that, even without being part of the benchmark, Kuwait's economy remains a promising destination for investment due to its fiscal prudence and solid credit profile. Kuwait's reclassification aligns with a broader trend of economic and legislative reforms designed to bolster foreign investment. The country's Finance Minister, Noura Al-Fassam, recently stated that Kuwait's debt law is now in its final stages. The passage of this law is expected to enable Kuwait to issue debt for the first time since 2017, potentially raising up to $65 billion over the next 50 years. This move, which is part of a larger effort to diversify Kuwait's revenue base away from oil dependence, signals a long-term commitment to improving the country's financial infrastructure. The reclassification is also expected to draw more foreign investors into the local market, particularly in the Kuwait Stock Exchange (KSE). The KSE has been preparing for this shift by introducing new investment tools such as corporate bonds, sukuk, and index funds, all of which are likely to attract greater capital flows. Additionally, a new central counterparty (CCP) system is being developed to further enhance market liquidity and facilitate investment, particularly from foreign institutions. These reforms are poised to strengthen investor confidence in Kuwait's economic prospects and boost long-term market stability. Despite the positive outlook, Kuwait faces fiscal challenges. The government has projected a budget deficit of 6.31 billion dinars ($20.4 billion) for the fiscal year 2025-2026, a significant increase from the current year's estimated deficit of 5.6 billion dinars ($18.2 billion). This rise is partly due to lower-than-expected oil revenues, underscoring Kuwait's ongoing vulnerability to fluctuations in global oil prices. However, analysts remain optimistic that Kuwait will successfully manage its fiscal challenges, especially as the government continues to invest in infrastructure projects and diversify its economy. The country's planned debt issuance under the new law will provide additional resources for capital expenditure, which is vital for ongoing development efforts. The reclassification of Kuwait, along with Qatar, from emerging to developed market status, will likely influence broader financial trends. The removal of both nations from the EMBI is expected to reduce the amount of capital flowing into emerging markets, which may increase the yield investors demand to hold emerging market bonds compared to U.S. Treasuries. This yield spread is expected to widen by approximately 11 basis points as a result of the reclassification. Kuwait's departure from the EMBI reflects its increased financial stability, but it also suggests a shift in the global investment landscape. With Kuwait's bond market now outside the EMBI framework, it is expected to continue drawing attention from investors seeking low-risk opportunities in developed markets, especially as global demand for stable and diverse investment opportunities grows. The transition to developed market status marks a critical juncture in Kuwait's economic evolution. As the country navigates its fiscal challenges and undertakes new legislative measures, the reclassification is poised to enhance its global financial standing. With increased foreign investment, greater market liquidity, and a commitment to economic diversification, Kuwait is positioning itself for long-term growth. As foreign institutions and global funds increasingly look to invest in Kuwait, the country's financial markets will continue to expand. The reclassification not only reflects Kuwait's evolving creditworthiness but also underscores the nation's growing importance as an attractive investment hub in the Middle East. While Kuwait's removal from the EMBI will affect emerging market bond traders, the reclassification has clear long-term benefits. As Kuwait moves toward a more diversified and stable economic future, the investment community will likely examine the opportunities emerging within its borders more closely. The next few years will be critical for Kuwait as it continues to strengthen its financial framework and attract international investment.
