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Bonds Seen as Last Man Standing as Rally Loses Steam: EM Survey

Bonds Seen as Last Man Standing as Rally Loses Steam: EM Survey

(Bloomberg) -- As the recovery in emerging markets starts to abate, bonds are seen as the most resilient asset class amid a dovish Federal Reserve and the mounting prospect of slower global growth.

Most respondents in a Bloomberg survey of 36 global fund managers, strategists and traders expected developing-nation debt to continue this year’s rebound. They were less sure about the rallies in currencies and equities.

Read what the last survey showed, here.

Bonds Seen as Last Man Standing as Rally Loses Steam: EM Survey

Emerging markets finished the first quarter in positive territory, posting the biggest gains in January as the Fed turned increasingly dovish and other major central banks looked to follow suit. Later in the quarter, concern over the weakening outlook for global growth began to weigh on riskier assets, stalling the rally that had sent equities to their best quarter in two years.

“With the Fed’s dovish turn and risks of economic slowdown globally, central banks in emerging markets won’t have to raise rates, which is a good environment for bonds,” said Koji Fukaya, chief executive officer at FPG Securities Co. in Tokyo. “We’re not seeing an all-round bullish risk sentiment, but it’s not as if everyone is turning bearish either. So there will be some cherry-picking.”

Even if emerging-market assets take a turn for the worse, bonds are still seen as the safest bet, according to the survey conducted between March 20-30.

Bonds Seen as Last Man Standing as Rally Loses Steam: EM Survey

On a country by country basis, Brazil, which last month saw its key rate held at a record low, and Indonesia, where the monetary authority has been buying bonds and currency to stabilize the nation’s markets, were among the top picks. Argentina, with the world’s highest interest rates, and Turkey, where the swap rates briefly surged beyond 1,300 percent, continued to be the least popular.

Bonds Seen as Last Man Standing as Rally Loses Steam: EM Survey

By region, the views were mixed, but Asia is seen outperforming in two asset classes.

Bonds Seen as Last Man Standing as Rally Loses Steam: EM Survey

Compared with developed markets, emerging markets were still expected to outperform as investors search for yield.

Bonds Seen as Last Man Standing as Rally Loses Steam: EM Survey

Survey respondents saw the global growth outlook as the biggest driver for developing-market assets. In the previous survey, the factor was ranked No. 3.

Bonds Seen as Last Man Standing as Rally Loses Steam: EM Survey

Finally, here are charts illustrating the outlooks for growth, inflation and monetary policy in 11 emerging markets.

Bonds Seen as Last Man Standing as Rally Loses Steam: EM Survey
Bonds Seen as Last Man Standing as Rally Loses Steam: EM Survey
Bonds Seen as Last Man Standing as Rally Loses Steam: EM Survey

The survey participants:

  • Aberdeen Standard Investments
  • Amundi Asset Management
  • Asset Management One Co.
  • Auerbach Grayson & Co. LLC
  • Bank of Singapore Ltd.
  • BlueBay Asset Management
  • BNP Paribas Asset Management
  • Cartica Management LLC
  • CIMB Bank Bhd.
  • Columbia Threadneedle Investments
  • Commerzbank AG
  • Deutsche Bank Wealth Management
  • Fidelity International
  • FPG Securities Co.
  • Fujitomi Co.
  • Grantham Mayo Van Otterloo & Co.
  • ING Groep NV
  • Kyoto University
  • Legal & General Investment Management
  • Macro Intelligence 2 Partners
  • Manulife Asset Management
  • Mizuho Bank Ltd.
  • Mizuho Research Institute Ltd.
  • Neuberger Berman Group LLC
  • Nissay Asset Management Corp.
  • Nomura Holdings Inc.
  • Oanda Corp.
  • Renaissance Capital
  • Rubrics Asset Management Ltd.
  • Societe Generale SA
  • TD Securities Inc.
  • Vanguard Asset Management
  • Voya Investment Management
  • Wells Fargo & Co.
  • WisdomTree Investments Inc.
  • Woodman Asset Management

--With assistance from Tomoko Yamazaki, Aline Oyamada, Ben Bartenstein, Carmen Reinicke, Colleen Goko, Paul Wallace, Lilian Karunungan, Hannah Dormido, Alex Nicholson and Cormac Mullen.

To contact the reporters on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net;Adrian Leung in Hong Kong at aleung206@bloomberg.net;Selcuk Gokoluk in London at sgokoluk@bloomberg.net

To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, ;Jeremy Diamond at jdiamond22@bloomberg.net, Philip Sanders

©2019 Bloomberg L.P.