Investors from Pacific Investment Management Co to Neuberger Berman and Grantham Mayo Van Otterloo (GMO) are eyeing local-currency debt and select reform stories from countries including Ecuador and Argentina, which they say stand to benefit most from the boon the Fed cuts should provide to risk assets.
“You have to sort of pick and choose. If you just own the local bonds currency unhedged, you are wearing the full volatility of this index,” said Pramol Dhawan, the head of emerging-market debt at Pimco. He’s neutral to underweight investment grade, overweight “some of the high yielders” and long local-currency assets. “That’s a portfolio construct that will work.”
Emerging markets have been mired by volatility as global economic uncertainty and regional conflicts roil buoyant forecasts. A gauge of EM equities has gained about 14%, lagging a 26% rally for the S&P 500 Index.
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