By Walter Brandimarte
NEW YORK, April 7 (Reuters) - Investors should perceive more risk in developed economies, which are 'on the path to solvency problems,' while increasing their exposure to emerging markets, a portfolio manager at influential fund manager BlackRock said on Tuesday.
Imran Hussain, head of the emerging markets debt team at the company, forecast that risk premiums of emerging and developed economies will inevitably converge -- a process that has only been delayed by the fact that the U.S. dollar and the euro stand as the world's reserve currencies.
'If they did not have that status, we would be like Argentina during the default crisis,' Hussain told reporters at a round table at the company's headquarters in New York.
'None of us want to be at that stage where you're actually questioning the solvency of nations and you have a series of failed auctions. But you do have the potential for that in this environment,' he added.
Emerging markets, on the other hand, remain on a 'more stable solvency path,' Hussain said, arguing that those countries rely on much less leveraged financial systems, and still have positive average growth and demographics.
'The lines between emerging market and advanced economies are blurred,' Hussain said, adding that the concept of the safe-haven AAA credit rating might not exist anymore outside of the rating agencies' minds.
The convergence between developed and emerging market's assets has already started, Hussain said, citing the extraordinary spread widening in fixed-income markets of U.S. and European financials, high-yield companies. That move could happen 'quicker than we think if the (global economic) hole broadens and deepens,' he added.
U.S. high-yield bond spreads widened to a record 2,182 basis points in December from about 800 basis points in August. Spreads have rallied to about 1,643 basis points through Monday, according to Merrill Lynch & Co data.
Emerging market sovereign debt spreads, by comparison, peaked at 865 basis points in mid-October from around 290 basis points in the beginning of August, according to JPMorgan's EMBI+ index. EMBI+ spreads currently stand at around 580 basis points.
INCREASING EM EXPOSURE
With unprecedented stimulus packages, U.S. and European policymakers are trying to smooth out an unavoidable shift in the world's growth and consumption dynamics, which will eventually turn emerging economies into the new global growth engine, said Dan Chamby, associated portfolio manager at BlackRock's Global Allocation Fund.
'Policymakers around the world are trying to do what they can do in order to slow that reversal, but it's an inevitable change. This will occur,' he said at the same round table, adding that exposure to emerging market assets has to grow accordingly.
BlackRock currently invests 55 percent of the $40 billion under management at its Global Allocation Fund in equity markets -- and 7 percent of that in emerging market equities.
Another 35 percent of the fund's assets are invested in fixed income -- with 10 percent of that in emerging-market bonds. The remainder 10 percent is currently in cash, Chamby said.
'We see greater value at the margin in emerging markets fixed income,' he said.
(Editing by Jonathan Oatis) Keywords: BLACKROCK EMERGINGMARKETS (walter.brandimarte@thomsonreuters.com; +1-646-223-6319; Reuters Messaging: walter.brandimarte.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK, April 7 (Reuters) - Investors should perceive more risk in developed economies, which are 'on the path to solvency problems,' while increasing their exposure to emerging markets, a portfolio manager at influential fund manager BlackRock said on Tuesday.
Imran Hussain, head of the emerging markets debt team at the company, forecast that risk premiums of emerging and developed economies will inevitably converge -- a process that has only been delayed by the fact that the U.S. dollar and the euro stand as the world's reserve currencies.
'If they did not have that status, we would be like Argentina during the default crisis,' Hussain told reporters at a round table at the company's headquarters in New York.
'None of us want to be at that stage where you're actually questioning the solvency of nations and you have a series of failed auctions. But you do have the potential for that in this environment,' he added.
Emerging markets, on the other hand, remain on a 'more stable solvency path,' Hussain said, arguing that those countries rely on much less leveraged financial systems, and still have positive average growth and demographics.
'The lines between emerging market and advanced economies are blurred,' Hussain said, adding that the concept of the safe-haven AAA credit rating might not exist anymore outside of the rating agencies' minds.
The convergence between developed and emerging market's assets has already started, Hussain said, citing the extraordinary spread widening in fixed-income markets of U.S. and European financials, high-yield companies. That move could happen 'quicker than we think if the (global economic) hole broadens and deepens,' he added.
U.S. high-yield bond spreads widened to a record 2,182 basis points in December from about 800 basis points in August. Spreads have rallied to about 1,643 basis points through Monday, according to Merrill Lynch & Co data.
Emerging market sovereign debt spreads, by comparison, peaked at 865 basis points in mid-October from around 290 basis points in the beginning of August, according to JPMorgan's EMBI+ index. EMBI+ spreads currently stand at around 580 basis points.
INCREASING EM EXPOSURE
With unprecedented stimulus packages, U.S. and European policymakers are trying to smooth out an unavoidable shift in the world's growth and consumption dynamics, which will eventually turn emerging economies into the new global growth engine, said Dan Chamby, associated portfolio manager at BlackRock's Global Allocation Fund.
'Policymakers around the world are trying to do what they can do in order to slow that reversal, but it's an inevitable change. This will occur,' he said at the same round table, adding that exposure to emerging market assets has to grow accordingly.
BlackRock currently invests 55 percent of the $40 billion under management at its Global Allocation Fund in equity markets -- and 7 percent of that in emerging market equities.
Another 35 percent of the fund's assets are invested in fixed income -- with 10 percent of that in emerging-market bonds. The remainder 10 percent is currently in cash, Chamby said.
'We see greater value at the margin in emerging markets fixed income,' he said.
(Editing by Jonathan Oatis) Keywords: BLACKROCK EMERGINGMARKETS (walter.brandimarte@thomsonreuters.com; +1-646-223-6319; Reuters Messaging: walter.brandimarte.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.