A focus on structural reform in emerging markets could lead to new investment opportunities in their credit and sovereign debt markets, says a Manulife Asset Management paper.
In its paper, Emerging Markets – Refocusing on Reform, authors Paolo Valle and Roberto Sanchez-Dahl favour countries such as Mexico and Brazil.
The co-heads of the emerging market debt team at Manulife Asset Management say when the new Mexican government was chosen in 2012, it was able to bring political parties together into a political pact to pass reforms that had been stalled for decades, particularly in the energy and telecommunications sectors.
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“The bundle of reforms that were tackled simultaneously should translate into a wide range of sectors and corporate issuers in Mexico, providing attractive credit opportunities for debt investors,” they write.
The authors also see potential in Brazil, noting that the government will press ahead with its structural reforms because it needs to.
“After more than two decades of steady progress—to the point that its sovereign bonds are rated investment grade—the government is likely to do everything it can to protect that position and stave off any potential downgrades,” Valle and Sanchez-Dahl write.
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They also mention there are fixed income opportunities in both India and Indonesia.
“Importantly, the expectations of the market participants, together with each country’s ability to bring forward the approval and implementation of these reforms, in our opinion, will differentiate among these emerging economies,” they write. “The likely disconnect should drive investment opportunities in the short to medium term.”