Emerging Markets Debt

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.

• Against the backdrop of key macroeconomic and market dynamics, we focus on EM country and issuer fundamentals and relative valuations to determine our security selection and initial portfolio positioning
• A strict risk management framework is used to validate our investment ideas; we use robust stress-testing and scenario analysis tools to continuously calibrate and optimize portfolio exposures

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. Reiterative risk management is a critical to our process. 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.

• We assess economic and fundamental EMD drivers with relative value analytics, market dynamics and technical factors to model the initial portfolio positions
• Our model portfolios then undergo rigorous stress-testing and scenario analysis to fine-tune initial position sizing/scaling as well as to recalibrate and optimize positions over time

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 per cent 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