You upgraded EM hard currency bonds to Overweight. Can you please elaborate on the rationale behind this decision?

Eirini Tsekeridou: We consider bonds issued in stable global currencies (e.g. US dollars or euros) by emerging market issuers as an attractive diversifier for portfolios that include high-quality bonds from various developed markets.

We have become more optimistic about the segment, because we believe that the monetary easing cycles in most emerging markets will continue this year. Our ’overweight’ rating stems from our conviction that there are pockets of value in Latin America, the Middle East, and investment-grade Asian corporate debt. This is also supported by our overall constructive macroeconomic view for 2024.

So of the three regions you just mentioned, Latin America is the most recent one that you have upgraded to Overweight. Why do you like it?

There are several reasons why we find Latin America attractive. We expect easing inflationary pressures and rising export revenues to improve the region’s financial health this year, leading to a modest recovery in growth. Other favourable factors include our expectation of a stable US dollar and that the US will avoid a recession. In addition, we expect a decrease in political risk in the region this year, whilst geopolitical conflicts are likely to remain concentrated in other parts of the world. Finally, we consider current bond valuations in the region to be attractive.

You also continue to like the Middle East, in particular the Gulf region. What is your investment case there?

We see some key advantages for the region this year, which, altogether, make it an attractive investment prospect for 2024. Firstly, the Middle East is projected to continue to grow at a solid pace, which, combined with low rates of inflation, makes for a robust economy. Secondly, there is the subject of fiscal break-even oil prices, which are currently lower than actual oil price levels. Fiscal break-even oil prices refer to the minimum oil prices per barrel that countries need to meet their planned spending levels while maintaining a balanced budget. So the fact that break-even prices are lower than current levels means that these countries achieve a budget surplus. Thirdly, the region’s large sovereign wealth funds adequately cover external debt and provide an important stability factor.

And finally, for investors looking to invest in Asia, what would be your preference?

In Asia, we prefer high-quality, investment-grade corporate bonds. Although the valuations are tight and borrowing costs are likely to remain elevated, the overall fundamentals are improving. Thus, in our view, the spreads for quality issuers have some further compression potential. With regard to the riskier parts of the region’s bond universe, China’s troubled property sector is likely to remain a drag.