Emerging Markets Debt
Our Emerging Markets Debt (EMD) strategies seek superior risk-adjusted returns achieved through rigorous country, issuer and currency selection, sophisticated scenario-based stress-testing and downside risk management.
Getting to know opportunities in Emerging Markets
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
Global Emerging Markets Bond
HSBC’s Global Emerging Markets Bond strategies invest predominantly in EM sovereign and quasi-sovereign bonds denominated in USD. The strategies can also include some off-benchmark exposure to corporates and local currencies to control volatility and maximize risk-adjusted returns.
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 67 countries and consists of regularly traded, liquid government bonds.
Our philosophy
Our Global Emerging Markets Bond strategies aim to capture growth potential in external EM debt while managing volatility. Although they invest primarily in EM sovereign and quasi-sovereign bonds that have been issued in USD, our EMD hard currency strategies may include some off-benchmark positions in EM corporates, EM local debt and EM currencies for diversification potential.
- Exhaustive analysis of EM country and issuer fundamentals and valuations are critical inputs for our investment decisions. This analysis is evaluated within current economic, financial and market contexts to determine overall portfolio risk positioning
- We use a robust risk management framework through which we stress-test our investment ideas under various scenarios, continuously calibrating and optimizing our portfolio exposures
Our process
Portfolio management decisions incorporate the expertise and analysis of a large, dedicated team of EMD specialists, credit analysts and economists. The process is collaborative and dynamic: specialists are each responsible and accountable for numerous investment inputs and decisions.
We integrate macroeconomic views, themes and catalysts with detailed country/currency fundamentals and relative valuation analysis. Our initial investment positions are then modeled and calibrated via stress-testing and scenario analysis to create a resilient and diversified portfolio.
- We 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 technicals
- We use robust risk management tools to stress-test our investment ideas with enhanced scenario analysis. We also continuously calibrate the size and scale of our positions to optimize the portfolio
HSBC Asset Management strengths
Emerging markets are part of our corporate DNA and we have one of the longest track records in the EMD universe, dating back to 1998
- 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
- EMD capabilities range from US dollar-denominated sovereign, quasi-sovereign and corporate bonds to local currency-denominated debt and local FX. We offer both benchmarked and total return strategies in this space
Source: Bloomberg, data as of 18 September 2020 Investment involves risks. Past performance is not indicative of future performance.
Important Information:
This page is prepared for general information purposes only and does not have any regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive it. This page does not constitute an offering document and should not be construed as a recommendation, an offer to sell or the solicitation of an offer to purchase or subscribe to any investment.
This advertisement has not been reviewed by the Monetary Authority of Singapore.
Investors and potential investors should not invest in the Fund solely based on the information provided in this document and should read the prospectus (including the risk warnings) and the product highlights sheets, which are available upon request at HSBC Asset Management (Singapore) Limited (“AMSG”) or our authorised distributors, before investing. You should seek advice from a financial adviser. Investment involves risk. Past performance of the managers and the funds, and any forecasts on the economy, stock or bond market, or economic trends that are targeted by the funds, are not indicative of future performance. The value of the units of the funds and income accruing to them, if any, may fall or rise and investor may not get back the original sum invested. Changes in rates of currency exchange may affect significantly the value of the investment. AMSG has based this document on information obtained from sources it reasonably believes to be reliable. However, AMSG does not warrant, guarantee or represent, expressly or by implication, the accuracy, validity or completeness of such information.
HSBC Asset Management (Singapore) Limited
10 Marina Boulevard, Marina Bay Financial Centre, Tower 2, #48-01, Singapore 018983
Telephone: (65) 6658 2900 Facsimile: (65) 6225 4324
Website: www.assetmanagement.hsbc.com/sg
Company Registration No. 198602036R
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