We permit the publication of our auditors’ report, provided the report is published in full only and is accompanied by the full financial statements to which our auditors’ report relates, and is only published on an access-controlled page on your website, to enable users to verify that an auditors’ report by independent accountants has been commissioned by the directors and issued. Such permission to publish is given by us without accepting or assuming any responsibility or liability to any third party users save where we have agreed terms with them in writing.

Our consent is given on condition that before any third party accesses our auditors’ report via the webpage they first document their agreement to the following terms of access to our report via a click-through webpage with an 'I accept' button. The terms to be included on your website are as follows:

I accept and agree for and on behalf of myself and the Trust I represent (each a "recipient") that:

  1. PricewaterhouseCoopers LLP (“PwC”) accepts no liability (including liability for negligence) to each recipient in relation to PwC’s report. The report is provided to each recipient for information purposes only. If a recipient relies on PwC’s report, it does so entirely at its own risk;
  2. No recipient will bring a claim against PwC which relates to the access to the report by a recipient;
  3. Neither PwC’s report, nor information obtained from it, may be made available to anyone else without PwC’s prior written consent, except where required by law or regulation; and
  4. PwC’s report was prepared with Hermes Property Unit Trust's interests in mind. It was not prepared with any recipient's interests in mind or for its use. PwC’s report is not a substitute for any enquiries that a recipient should make. The financial statements are as at 25 March 2017, and thus PwC’s auditors’ report is based on historical information. Any projection of such information or PwC’s opinion thereon to future periods is subject to the risk that changes may occur after the reports are issued and the description of controls may no longer accurately portray the system of internal control. For these reasons, such projection of information to future periods would be inappropriate.
  5. PwC will be entitled to the benefit of and to enforce these terms.
I accept

1. Select your country

  • United Kingdom
  • Austria
  • Australia
  • Belgium
  • Denmark
  • Finland
  • France
  • Germany
  • Iceland
  • Ireland
  • Italy
  • Luxembourg
  • Netherlands
  • Norway
  • Singapore
  • Spain
  • Sweden
  • Switzerland
  • USA
  • Other

2. Select your investor type

  • Financial Advisor
  • Discretionary Investment Manager
  • Wealth Manager
  • Family Office
  • Institutional Investor
  • Investment Consultant
  • Charity, Foundation & Endowment Investor
  • Retail Investor
  • Press
  • None of the above

3. Accept our terms and conditions

By clicking Proceed I confirm I have read the important information and agree to the terms of use.


The Hermes Investment Management website uses cookies to remember your preferences and help us improve the site.
By proceeding, you agree to cookies being placed on your computer.
Read our privacy and cookie policy.

Even at extremely low valuations, selectivity is key in EMD

Home / Perspectives / Even at extremely low valuations, selectivity is key in EMD

14 January 2015

When engaged in our favourite pastimes, an hour can feel like a second. But when you sit on a red-hot cinder, a second will seem like an hour. That's relativity. And when investors are on the wrong side of a market pull-back they can experience the same kind of relativity: a region that they previously held as a long term exposure suddenly becomes a painful liability. This shift of perspective often pushes investors towards indiscriminate selling. Emerging markets (EM) high-yield debt fast became that red-hot cinder in 2013 as tapering fears drove investors towards developed market (DM) debt.

However, as the spread ratio of EM high yield to DM high yield widened, we found there was still plenty of opportunity despite the prevailing pessimism. Our preference at the time, given that EM growth was slowing, was for higher quality global players – typically BBB-BB rated issuers with an EM domicile but significant operations in developed markets that generated substantial revenues. These types of companies stand to benefit from US dollar strength and are not overexposed to their local domestic economies.

Then in February 2014 the relative risk/reward dynamic began to turn: any decision to add EM risk was mostly predicated on the belief that DM high yield had become too expensive, particularly relative to EM debt (we analysed this opportunity in the March 2014 issue of Spectrum). As you can see from the chart below, the spread ratio of EM high yield to DM high yield subsequently declined but has now rallied back at an extreme level of 1.88.
Blowing out: spread ratio of EM high yield relative to DM high yield v 10-year Treasuries

Source: Bank of America Merrill Lynch, Bloomberg as at 6 January 2015.

So EM high yield again looks attractive on relative terms. However, in our view, the recent widening of EM spreads has been driven not by fears of US rate hikes (as in late 2013), but rather by general concerns over global growth and by the conflict in Ukraine.

This becomes clear when you look at the spread ratios for the three main EM regions: Asia, EMEA and Latin America. All three regions widened in tandem in 2013 on rate hike fears. But since March 2014, EM Asian debt (both HY and IG) has significantly outperformed both DM high yield and other EM regions – particularly EMEA, due to the conflict in Ukraine. Latin America also rallied but the re-election of Dilma Rouseff, whose interventionist policies spook investors, and growth concerns reversed sentiment.

So as in 2013, while we think there’s a lot of value within the EM debt space, we believe that it’s imperative to be very selective as idiosyncratic and geopolitical risk has increased over the past year, making security selection even more important. Furthermore, we still think that focusing on higher quality global businesses with BBB-BB ratings is the way to play the EM space.

Share this post:

Find posts by author

  • Alex Knox, ACA
  • Amy Wilson
  • Andrew Jackson
  • Andrew Parry
  • Andrey Kuznetsov, CFA
  • Audra Stundziaite
  • Claire Gavini
  • Dr Michael Viehs
  • Elena Tedesco
  • Emeric Chenebaux
  • Eoin Murray
  • Gary Greenberg
  • Geir Lode
  • Geoffrey Wan, CFA
  • Hamish Galpin
  • Harriet Steel
  • Ilana Elbim
  • Ingrid Holmes
  • Jonathan Pines, CFA
  • Joseph Buckley
  • Kimberley Lewis
  • Louise Dudley
  • Mark Sherlock, CFA
  • Martin Todd
  • Maxime Le Floch, CFA
  • Michael Russell, CFA
  • Michael Vaughan
  • Mitch Reznick, CFA
  • Neil Williams
  • Nick Spooner
  • Nina Röhrbein
  • Patrick Marshall
  • Peter Hofbauer
  • Philip Nell
  • Saker Nusseibeh
  • Silvia Dall’Angelo
  • Tatiana Bosteels
  • Tim Crockford
  • Tim Goodman
  • Tommaso Mancuso
  • Yasmin Chowdhury

Find posts by category

  • credit