Emerging Market Debt attractive yield with solid fundamentals

Transcription

1 For professional use only Not for Public distribution Emerging Market Debt attractive yield with solid fundamentals November 2012 Kevin Daly, Senior Portfolio Manager EMD Aberdeen Asset Management

2 Table of contents EMD return characteristics EMD asset class comprises countries and companies that are fiscally sound EMD economies will be key drivers of global growth in the future EMD stands out in a lower for longer world The EMD universe EM companies getting in the act Summary Appendix 1

3 Risk & return data support the case for EMD 15 years benchmark risk and returns Benchmark annualised returns GBP (%) Emerging Markets Debt 9 8 Emerging Markets Equity 7 UK Fixed Corporate Bond UK Equities Global Equities Risk/annualised standard deviations (%) * All figures were correct at the close of business on 31 Aug 12 Benchmarks Used: Emerging Markets Debt JPM EMBI Global Diversified Emerging Markets, Equity MSCI Emerging Markets, Global Equities MSCI World UK Equities FTSE AllShare UK Fixed Corporate Bond Merrill Lynch Sterling Non-Gilts 2

4 The perception of risk versus the reality Country A Country B Public Debt (% GDP) Fiscal Deficit (% GDP) GDP Growth (%) Year Real Yield (%) US Mexico Source: IMF World Economic Outlook, Apr 12; Bloomberg, Sep 12 3

5 The biggest is not necessarily the best! Public debt (% GDP) Fiscal deficit (% GDP) 120 US Mexico 0 US Mexico E 2013F E 2013F Source: Aberdeen Asset Management, Sep 12 4

6 EM economies have considerably lower debt levels... General Government Debt (% GDP) vs Government Balance (% GDP) Gross General Government Debt for 2012 (% of GDP) Japan Japan's Govt. Debt is 236% Greece Jamaica Lebanon Italy Barbados Ireland Portugal USA Belgium UK France Canada Egypt Spain Germany Hungary Jordan Netherlands India Brazil Ivory Coast Developed countries Eurozone G10 Asia CEEMEA LatAm CroatiaSerbia Slovenia Poland Venezuela Malaysia El Salvador Norway Slovak Republic Switzerland Argentina Senegal Mexico Uruguay Lithuania ThailandPhilippines South Africa VietnamUkraine Latvia Belarus Turkey Sweden Georgia Romania Costa Rica Korea Colombia Panama Iraq Dominican Republic Qatar Namibia Australia Luxembourg Guatemala China Indonesia Peru Ecuador UAE Emerging countries Chile Russia Kazakhstan Saudi Arabia General Government Balance for 2012 (% of GDP) Source: IMF, World Economic Outlook Database, May 12 5

7 EM now accounts for more than 70% of global GDP growth China s share now at 50% %-pt contribution to global nominal GDP %oya growth F 2013F Source: JP Morgan 6

8 ... and are likely to be the main drivers of future growth f Japan 6% Other 9% Emerging Markets 40% North America 11% Japan 2% Other 9% Emerging Markets 69% North America 22% Europe 9% Europe 23% By 2050 Emerging Markets are forecast to represent 69% of world GDP versus 40% now With a growing, financially independent, aspirational middle class Source: Citi Mar 11; GDP measured in 2010 PPP USD 7

9 EM now accounts for 40% of global consumption % of global consumption 40 EM US Source: JP Morgan 8

10 EMD yields stand out in lower for longer world EM external, domestic and corporate indices are all investment grade Yield (%) EM Local Currency (BBB+) EM Corporates (BBB) EM Hard Currency (BBB-) US 10yr (AA+) Germany 10yr (AAA) EM Local currency index: JPM GBI-EM GD, EM Hard currency index: JPM EMBI GD, EM Corporate index: JPM CEMBI BD Source: JP Morgan, S&P, Bloomberg, 17 Oct 12 9

11 Real yields remain elevated Country 10 year bond yield (%) Inflation y-o-y (%) Real yield (%) Credit rating (S&P) Brazil A- Colombia BBB+ South Africa A Malaysia A Indonesia BB+ Russia BBB+ Mexico A- US AA+ UK AAA Germany AAA Source: S&P, Bloomberg, 17 Oct 12 10

12 for investment grade credit quality S&P breakdown of EMBI Global Diversified Index S&P breakdown of GBI-EM Global Diversified Index B 16.5% NR 1.6% AA 3.2% A 9.0% BB 16.9% A 57.4% BB 25.2% BBB 44.4% BBB 25.8% External debt is 57% investment grade Average credit quality is BBB- Domestic debt is 83% investment grade Average credit quality is BBB+ Source: JP Morgan, 31 Jul 12 11

13 EM sovereign debt has shown steady improvement in credit quality % of EMBIG market capitalization by ratings bucket 100% NR B BB IG 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: JP Morgan 12

14 The EMD universe has grown rapidly Total EMD market: USD 7.7trn Size of the EMD market by investment type Local Sovereign USD Sovereign USD Corporate 9,000 8,000 7,000 6,000 5,000 Local Sovereign $6,000 bn (78%) USD Corporate $1,023 bn (13%) USD Sovereign $549bn (9%) 4,000 3,000 2,000 1, EMD local debt is more than three times the value of external debt Source: BIS, Bondradar, JP Morgan, Sep 12 13

15 EM local market issuance dwarfs hard currency issuance for sovereigns Local currency gross issuance (USD bn) 600 Gross Issuance issuance Net issuance Issuance (gross minus maturities) Local issuance as a % of total sovereign issuance (rhs) 95% % 85% % % 70% % % 55% YTD 50% Note: Data for local issuance includes countries in the GBI-EM Broad index as well as those under review for inclusion, along with Israel, which is in the GBI index. Source: Bond Radar, JP Morgan, official sources 14

16 Low sovereign issuance paves the way for corporates Total external issuance (USD bn) 160 EM Sovereign EM Quasi-sovereign EM Corporates F * Issuance multiple of corporate and quasi-sovereign over sovereign Source: JP Morgan, Sep 12 For illustrative purposes only 15

17 Which is rapidly developing into a discrete asset class Relative size of markets (USD bn) 5,000 Investment Grade High Yield 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, US HY US IG Euro HY Euro IG EM Sovs (HC)* EM Sovs (LC)* EM Corps (HC)* EM Corps (LC)* US HY: ML US High Yield Master II Index, US IG: ML US Corporate Master Index, Euro HY: ML Euro High Yield Index, Euro IG: ML EMU Financial Corporate Pfandbrief Index Source: BofA Merrill Lynch. * Source: ING (total debt outstanding), as at 31 Dec 11. For illustrative purposes only

18 With a growing, dedicated investor base Estimated value of assets managed against EM indices (USD bn) 250 Local debt (JPM GBI-EM) External debt (JPM EMBI) External corporate debt (JPM CEMBI) Source: JP Morgan, Dec 11. For illustrative purposes only 17

19 EM local pension fund assets have risen past $1.7trn, while EM insurance company assets approach $3trn Pension fund assets (USD bn) Insurance company assets (USD bn) Latin America EM Asia EMEA Latin America EM Asia EMEA 2.7 trn trn Source: Official sources and JP Morgan, Nov 12 18

20 This is a structural story EM fixed income flows will likely end the year at a new record US$85 billion USD bn Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: JP Morgan 19

21 But the same perceptions exist for companies Company A Company B Net interest margin (%) Return on common equity (%) Total capital ratio 1 (%) Yield of representative 2016 senior bond 2 (%) JP Morgan A2 rated US bank Bancomer A2 rated Mexican bank 1. Total capital/risk weighted assets 2. Mid yield to maturity Source: Company presentations and reporting, figures for Q Securities selected for illustrative purposes only. 20

22 Yet, EM companies have consistently lower default rates 12 month rolling Speculative grade default rates Emerging Markets US Europe Global U.S. default rate includes issuers incorporated in U.S. tax havens (for example, Bermuda and Cayman Islands). Europe refers to Austria, Belgium, Bulgaria, Channel Islands, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, and the U.K. Data through March 31, Subject to revision. Source: Standard & Poor's CreditPro, May

23 but trades at wider spreads EM corporates have lower leverage in the same ratings buckets and wider spreads despite lower leverage EM Corporates US Corporates EM Corporates US Corporates A A BBB BBB BB BB B B Net Leverage, x Spread per Turn of Net Leverage, bps/x Source: BofA Merrill Lynch Global Research, Sep 12 22

24 EM countries have maintained current account surpluses for 15 consecutive years Current account balance (% of GDP) 8 total EM Europe ex Russia EM Europe Latin America Emerging Asia Source: JP Morgan

25 EM inflation has been well-contained and has trended lower after peaking in July last year CPI %oya 10 Developed markets Emerging markets Source: JP Morgan

26 Summary EMD markets are extremely attractive with better fundamentals and lower default rates Perceptions are often counter to this reality in both countries and companies This is a rapidly growing asset class which is predominantly investment grade Inflows are structural and should remain steady amid search for yield EMD offers attractive return opportunities 25

27 Appendix

28 Aberdeen: EMD Plus allocation history EMD Plus LC Sovereign HC Sovereign/Quasi HC Corporates FX exposure 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Source: TBC 27

29 Important information Investors should be aware that past performance is not a guide to future returns, the value of investments and the income from them can fall as well as rise and investors may get back less than the amount invested The views expressed in this presentation should not be construed as advice on how to construct a portfolio or whether to buy, retain or sell a particular investment. The information contained in the presentation is for exclusive use by professional customers/eligible counterparties (ECPs) and not the general public. The information is being given only to those persons who have received this document directly from Aberdeen Asset Management (AAM) and must not be acted or relied upon by persons receiving a copy of this document other than directly from AAM. No part of this document may be copied or duplicated in any form or by any means or redistributed without the written consent of AAM Issued by Aberdeen Asset Managers Limited which is authorised and regulated by the Financial Services Authority in the United Kingdom 28