Volatility equals opportunity in emerging markets
Portfolio Manager Jason DeVito offers insights on how tariffs and trade talks are affecting global and fixed income currency investments and where he's finding investing opportunities now.
Published September 18 2018
Hi, I'm Jason DeVito. I'm a Senior Analyst and Portfolio Manager with Federated Emerging Market Bonds Team.
How are tariffs and trade talks affecting global fixed income and currency investments?
Tariffs and trade talk are introducing a lot of volatility into the global fixed income and currency markets; however, we ultimately see that volatility as an opportunity. The harsh trade talks with Mexico provided a lot of volatility in Mexican assets, some big discounts and cheap valuations, and those ultimately provide opportunities to enter. We definitely think that the talks are gonna be more aggressive than the ultimate outcomes. As we saw with the trade talks with Mexico, initially the talks were very tough, but the ultimate resolution was fairly beneficial or benign towards Mexico. We expect that type of result elsewhere in the globe.
Where are you finding investing opportunities?
Again, we think that the current volatility is introducing opportunities; however, there's lots of noise around emerging markets, but the key is to not avoid the asset class, but at different points in time to avoid different parts of the asset class. And that can shift very quickly, so, maybe six months ago, you avoided Mexico, but then, three months ago, you realized it was a good entry point given, maybe, positive trade resolution. Currently, we see opportunities where overhang has been introduced from a lot of the geopolitical noise and trade talk. Again, we still think Mexico has a lot to recover in asset prices given the trade talk overhang has been lifted. And, kind of a corollary in Asia, we see places like South Korea and Thailand to maybe sold off a little more than is warranted given the overhang of trade talk which isn't particularly directed towards them, and, again, probably resolves more benevolently than what the market's pricing in. So, we see opportunities in South Korean corporates that have balance sheets equivalent or better to US corporates, but trade at much cheaper valuations.
01:55 Views are as of September 6, 2018 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices. International investing involves special risks including currency risk, increased volatility, political risks, and differences in auditing and other financial standards. Prices of emerging market securities can be significantly more volatile than the prices of securities in developed countries, and currency risk and political risks are accentuated in emerging markets. Federated Investment Management Company 18-75961 (9/18)