Learning objectives - EventsCase › radiusevents.co › uploads › ...10. For professional and institutional investors only. Not for retail investors. Jupiter Investment Forum 2018-16-12-8-4

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Jupiter Investment Forum 2018For professional and institutional investors only. Not for retail investors.

…the fundamentals and valuations of emerging markets

economiesin 2018

1

Learning objectivesInvestors should leave the presentation with an ability to discuss…

…the key risks of emerging market

debt in 2018

2

…how emerging market debt is evolving as an

asset class

3

2


Inflation likely to stay within CB’s rangeGDP growth should continue to accelerate

Potential goldilocks scenarioOn average domestic demand makes up 72% of GDP in EM countries

The views expressed are those of the presenter at the time of preparation and may change in the future. Source: Morgan Stanley, Global Macro Briefing, 24.01.18. Haver Analytics, National sources, Morgan Stanley Research forecasts.

0%

2%

4%

6%

8%

10%

12%

14%

16%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

03-0

202

-03

01-0

412

-04

11-0

510

-06

09-0

708

-08

07-0

906

-10

05-1

104

-12

03-1

302

-14

01-1

512

-15

11-1

6

Rea

l GD

P G

row

th (%

yoy)

DM EMXC* China (Right axis)

02468

1012141618

Indi

a

Indo

nesi

a

S. K

orea

Rus

sia

Turk

ey

Sout

h A

fric

a

Pola

nd

Bra

zil

Mex

ico

Arg

entin

a

Col

ombi

a

12M inflation forecast

Central bank target / midpoint of inflationtarget range

(RHS)

3


-6%

-5%

-4%

-3%

Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17

EMXC Fiscal balance in % of GDP

Fiscal deficits have narrowed

Falling external vulnerabilityGlobal cyclical upturn is underway and EM macro-adjustments have mostly been made

The views expressed are those of the presenter at the time of preparation and may change in the future. Source: Morgan Stanley, Global Macro Briefing, 24.01.18. Haver Analytics, IMF, National sources, Morgan Stanley Research.

4


EM countriesNot all moving in the same direction

Source: Morgan Stanley, Global Macro Briefing, as at 24.01.18.

Productive Growth

2Adjustment

4

Gradual Recovery

15

RestoringMacro

StabilityMis-

allocation

3

ColombiaSouth Africa

BrazilRussia

IndonesiaIndia

Poland

Turkey

South KoreaMexico

China

5


Ballots could lead to power and policy shift

South AfricaDec 2017: ANC Conference

RussiaMar 2018: Presidential Election

ColombiaMar 2018: Legislative Election

May 2018: Presidential Election

ChinaMar 2018: National People’s Congress

HungaryApr 2018: Legislative Election

MexicoJul 2018: Presidential/Legislative Election

MalaysiaAug 2018: Legislative Election

BrazilOct 2018: Presidential/Legislative Election

ThailandNov 2018: Legislative Election

EgyptMar 2018: Presidential Election

IraqMay 2018: Local Election

PakistanJul 2018: Local Election

CambodiaJul 2018: Local Election

IndonesiaJun 2018: Local Election

6


EM asset returns over FED tightening cycles

Higher Fed fund ratesWill they be negative for EM Assets?

Source: Morgan Stanley, How Fed-proof is EM?, 20.03.17. Data as of 29.01.18.

-30

-20

-10

0

10

20

30

40

1994-95 1999-2000 2004-2006 2013(Taper Tantrum)

2015-2017 YTD

Perf

orm

ance

tota

l ret

urn

(%)

Hard Currency Local Currency

Tightening: 2.75%

Tightening: 1.75%

Tightening: 4.25%

Tightening: 1.25%

7


EM corporates make 67% (50% in 2008) of external universe (US$bn)**

Emerging markets corporate issuance versus sovereign issuance*

The changing landscapeCorporates dominate in EMD hard currency

*Source: BofA Merrill Lynch Global research, as at 31.12.17. External debt.**Source: JP Morgan, as at 31.12.17.

0

100

200

300

400

500

600

700

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

US$

bn

EM corps EM sovereigns

Corporates1,895

Sovereigns919

67%

33%

8


Source: J.P. Morgan and BAML indices of 31.12.17.

A size comparable to EURO investment grade

0.0

0.5

1.0

1.5

2.0

2.5

EMcorporate

EUROIG

USHY

EMsovereign

EUROHY

US$

trn

9


Sector distributionGeographic distribution

Good diversification across regions and sectors

Source: Jupiter, as at 01.02.18. Index: JP Morgan CEMBI Broad Diversified.

36%

16%

7%36%

30% Europe

Middle-East

Africa

Asia

Latin America

0%

8%

16%

24%

32%

Fina

ncia

l

Oil

& G

as

TMT

Util

ities

Con

sum

er

Indu

stria

l

Rea

l Est

ate

Met

als

& M

inin

g

Div

ersi

fied

Infr

astr

uctu

re

Pulp

& P

aper

Tran

spor

t

10


-16

-12

-8

-4

0

4

8

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Cre

dit R

atin

g M

igra

tion

Rat

e, P

ctof

Is

suer

s

An improved credit story

0

200

400

600

800

1,000

1,200

1,400

1,600

2009

2010

2011

2012

2013

2014

2015

2016

2017

US$

mn

Investment Grade High Yield

66%

Total EM corporate external bond stock

Largely an investment grade asset classDespite continued de-rating in the last 2 years, over 66% remained in IG

Source: BofA Merrill Lynch Global Research, BofA Merrill Lynch Bond Indices, 31.12.17.

EMG HYEMG IG

11


Generally lower leverage and comparable interest rate coverage

Emerging markets corporatesFundamentals in context

Source: BofA Merrill Lynch Global Research, BofA Merrill Lynch Bond Indices, 01.02.18.

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

US IG EM IG US HY EM HY

Gross leverage Net leverage

12


The views expressed are those of the presenter at the time of preparation and may change in the future.Source: BofA Merrill Lynch Global Research, BofA Merrill Lynch Bond Indices, as at 01.02.18.

Attractive spread per turn of leverage

31

36

53

73

45

61

70

95 0 10 20 30 40 50 60 70 80 90 100

A

BBB

BB

B

Spread per turn of leverage (bps/x)

US EM

13


Source: JP Morgan, Bloomberg, Bond Radar, as at 01.02.18.

Strong technicalsNet financing for 2018 expected to be supportive for valuations

-400

-300

-200

-100

0

100

200

300

400

500

2012 2013 2014 2015 2016 2017 2018F

Gross Issuance Tender/buyback/calls Coupons Amortizations Net Financing

14


ConclusionDon’t misjudge the innocent bystander

Note: Jupiter has purchased the copyright to this image(s).

15


Current themes

The views expressed are those of the presenter at the time of preparation and may change in the future.

RationalePositioning

Geographies Favour LATAM Visible cyclical recovery with high carry opportunities and a stable commodity outlook Favour Brazil, Argentina & Colombia Limited exposure to Mexico

Sectoral preferences

Consumer Transport Metals and Mining

Local consumption picking up due to lower inflation expectation and stronger economic growth Global trade continues to surge and local airlines seeing improving margins Prices look set to remain stable in 2018 with limited new supply and stable demand

Rating Preference for High Yield Improving fundamentals Strong fallen angels (sovereign and corporates) Enough spread cushion to absorb UST volatility

Duration Preference for belly of the curve and beyond Taking advantage of very steep curves across EM

Local vs USD Increasing allocation to local currency

Inflation coming below CB’s range High real rates Political stability across several EM countries

16


Learning outcomesInvestors should have gained an ability to discuss…

…the fundamentals and valuations of emerging markets

economiesin 2018

1

…the key risks of emerging market

debt in 2018

2

…how emerging market debt is evolving as an

asset class

3

17


This presentation is intended for investment professionals and not for the benefit of retail investors. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. Any data or views given should not be construed as investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given.Past performance is no guide to the future. Company examples are for illustrative purposes only and are not a recommendation to buy or sell. Quoted yields are not guaranteed and may change in the future. Awards and ratings should not be taken as a recommendation.This document contains information based on the JPMorgan CEMBI Broad Diversified Total Return Index. Information has been obtained by sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. The index is used with permission. The index may not be copied, used, or distributed without J.P. Morgan’s prior written approval. Copyright 2016, J.P. Morgan Chase & Co. All rights reserved.For your security we may record or randomly monitor telephone calls. Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority.No part of this presentation may be reproduced in any manner without the prior permission of JAM.

Disclosure

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Learning objectives - EventsCase › radiusevents.co › uploads › ...10. For professional and institutional investors only. Not for retail investors. Jupiter Investment Forum 2018-16-12-8-4