Investors looking to boost their portfolio are being urged to look at emerging economies such as Mexico, Poland, Brazil and Hungary.
Baring Asset Management says these countries are now less risky and as a result the market bonds and currencies are worthwhile investments.
Growing numbers of investors have spotted the potential for these key emerging markets and regions and have added them to their portfolios.
The news comes as the Baring Emerging Market Debt Local Currency Fund showed a gain of 5.7% in the third quarter against a benchmark index of 4.8%.
The firm reckons that many of the emerging markets have fiscally sound economies and that market bonds and currencies will continue to do well.
Confidence in emerging markets
Especially since over the summer months the global economy continued to decelerate.
Thanasis Petronikolos, an investment manager for the fund, said: “As global economic activity falters, central banks in many countries have sought to prop up growth by promoting easing.
“This has helped some risky assets give a better performance than expected and we have a lot of confidence in bonds and currency from emerging markets.”
He said there was an opportunity because while interest rates in the US and Europe are set to stay low, interest rates in emerging markets have the headroom to come down significantly if required.
“The US Federal Reserve pledging more easing could trigger more gains for risky assets,” he said
“That’s because any quantitative easing so far has helped risk assets with a lot of extra liquidity from central banks ending up in emerging debt and currencies.
“In the long term we believe that the emerging markets will do well and that there are a number of Asian currencies which could also provide some good returns. That’s because their markets are not as volatile as others.
Rival German bunds
“We’ve done well in Mexico after a strong performance and we are still positive for that country’s economy and believe it will do well because it’s closely linked to a relatively robust economy in the US.”
As well as Mexico, the firm’s investment strategy looks towards bonds issued by well rated and sound economies, like Hungary, Poland, Brazil and South Africa.
Thanasis said: “In our scenario-based analysis these emerging markets, bonds and local currencies have a potential for growth. We also feel strongly that Hungarian government bonds will generate yields similar to those offered from German bunds over the long-term.”
The local currency fund returned an impressive 12 per cent year-to-date and the firm remains cautious on Thailand and Malaysia and has strong positions in South Africa and Hungary.
