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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.

Our philosophy

EMD has evolved into a complex asset class and requires specialising resources to identify opportunities and risks that may be mispriced or misunderstood. We believe EMD markets reflect fundamental values over the longer-term, but can be highly inefficient over the shorter-term.

  • 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

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 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 one of the longest track records in the industry.

  • Our global platform connects and supports an on-the-ground network of analysts and investment professionals across the world, leveraging their extensive local knowledge and insights
  • 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

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.