The market standard benchmarks for external, or hard currency, EM debt is the JP Morgan Emerging Markets Bond Index – Global (the EMBI-Global or the EMBI-Global Diversified) which covers 70 countries and consists of regularly traded, liquid government bonds.

Our Philosophy

Our Global Emerging Markets Debt investment strategies are based on our conviction that the active fundamental approach identifies valuation gaps and harvests alpha in a disciplined way. Our portfolios reflect our teams top-down view, combined with deep, fundamental research, which gives us the best opportunity to actively add value. We believe in alpha discipline, constructing portfolios with diversified sources of risk, to lower volatility and increase the information ratio.

We also believe that the flexibility to select from the widest universe of opportunities, across the full range of emerging markets debt instruments can provide investors with the best opportunity to potentially add value in portfolios.

The inefficiencies we attempt to exploit are:

• Price anomalies resulting from the fact that information levels vary widely across markets
• Yield curves that are not firmly established because developing investor bases are unfamiliar with the asset classes, creating windows of opportunity prior to accurate price formation
• Credits that are often mispriced vis-à-vis sovereign ratings
• Securities denominated in local currencies are typically less efficient than hard currency instruments and offer additional return potential from the FX component

Our process

The Global Emerging Markets Debt team combines top down and bottom up views based on rigorous fundamental research to build active portfolios with a keen focus on delivering attractive risk-adjusted returns. Fundamental analysis is the foundation of our country evaluation process to identify attractive sovereign EM opportunities. Before investment ideas can be properly evaluated, the team conducts detailed valuation work to determine whether or not their fundamental views are priced in by the market both across and within countries.

We capture macroeconomic views, catalysts and investment themes together with detailed EM country and currency fundamentals and relative valuation metrics to guide our investment approach.

Dedicated sovereign analysts evaluate all EM country fundamentals, reviewing their economic situation (growth, debt, trade balances, fiscal discipline, inflation, etc.) along with more subjective factors (governance, politics, history of default, etc.) as well as current market technical.

Reiterative risk management is a critical to our process. Our initial investment positions are modeled and calibrated via stress-testing and scenario analysis to create a resilient and diversified portfolio. We continuously assess the numerous external factors impacting EMD to fine-tune our positioning and to ensure we have optimized the portfolio for acceptable risk/return trade-offs.

HSBC Asset Management strengths

Emerging markets are part of our corporate DNA and we have over 20 years of experience managing Global Emerging Markets Debt portfolio – one of the longest track records in the space.

• A global investment platform allows us to leverage the insights and local knowledge of our on-the-ground network of analysts and investment professionals from across the world. As research drives our process, the dedicated corporate and sovereign analysts’ views drive the direction of portfolio manager trades. Portfolio managers focus on valuations, technicals and timing of investment entry/exit to harvest alpha most efficiently
• To analyze the large investment universe, the sovereign analysts are 100% dedicated to research, utilizing a focused balance of payments and debt sustainability methodology to forecast structural trends and predict relative credit spread moves for all 70+ countries within the investment universe
• The connectivity provided by a Global Credit Platform comprised of over 40 credit analysts world-wide, including 20 on-the-ground dedicated emerging markets credit analysts, is essential in today’s world, and is particularly important in the management of emerging markets corporate debt assets

For more information or to discuss your investment strategy, contact us.

Risks in consideration

There is no assurance that a portfolio will achieve its investment objective or will work under all market conditions. The value of investments may go down as well as up and you may not get back the amount originally invested. Portfolios may be subject to certain additional risks, which should be considered carefully along with their investment objectives and fees.

• Fixed income is subject to credit and interest rate risk. Credit risk refers to the ability of an issuer to make timely payments of interest and principal. Interest rate risk refers to fluctuations in the value of a fixed income security that result from changes in the general level of interest rates. In a declining interest rate environment, a portfolio may generate less income. In a rising interest-rate environment, bond prices fall
• High Yield Investments in high yield securities (commonly referred to as “junk bonds”) are often considered speculative investments and have significantly higher credit risk than investment grade securities. The prices of high yield securities, which may be less liquid than higher rated securities, may be more volatile and more vulnerable to adverse market, economic or political conditions
• Foreign and emerging markets Investments in foreign markets involve risks such as currency rate fluctuations, potential differences in accounting and taxation policies, as well as possible political, economic, and market risks. These risks are heightened for investments in emerging markets which are also subject to greater illiquidity and volatility than developed foreign markets
• Derivative instruments Derivatives can be illiquid, may disproportionately increase losses and may have a potentially large negative impact on performance