Bond yields in emerging economies promising

LONDON - Reuters

Shoppers pick up goods at an electronics retailer in the southern province of Antalya during a one-day discount. A rise in profits in the emerging markets is tied to moderate inflation and potential interest rate hikes, says to a fund manager at DB Investors. DHA photo

Emerging markets’ bonds and bill markets, particularly those in Turkey and Poland, will generate higher yields for investors next year, according a top executive of a Frankfurt-based fund management unit. 

The increase in profits in the emerging countries’ markets will be tied to moderate inflation and potential interest rate hikes in upcoming months, said Nicolas Schlotthauer, a portfolio manager at Deutsche Bank Advisors in a recent interview.

Noting emerging countries’ markets would be expected to generate an average of 7.5 percent yields, he said Turkey’s and Poland’s bonds have even higher potential.

Turkish bonds attractive 

Schlotthauer said Turkish bonds looks “attractive,” as the Turkish Lira would recover in value despite its 18 percent depreciation against the U.S. dollar since January this year due to the Turkish Central Bank’s reluctance to increase interest rates.

“We are interested in the short term Turkish bonds, because we think the lira will appreciate next year,” Schlotthauer said. 

“In a scenario of a possible decline in inflation, we expect the Turkish Central Bank to consider fiscal tightening, which would be positive for lira’s performance,” he said.

Managing a portfolio of $2.5 billion, Schlotthauer said recent predictions support his theory with the bond and bill market. “Looking at the next year, we expect countries which diversified their export markets and have the potential to compensate the slowdown in export through their domestic demand would perform better in upcoming year,” Schlotthauer said. 

According to him, slowdown in the increase of commodity and food prices globally indicated inflation had also hit a ceiling and increased the possibility of loosening of monetary policies.

Despite the current inflation in most of the emerging countries that are beyond the targets, slowdown in growth in the emerging countries and slowdown in the commodity and food prices reduce the inflation pressure in the countries, mainly in Mexico, South Africa and Poland.