While the equities may dominate discussions around emerging markets, the question arises of how a sector of tradeable debt valued at US$18trn can still be seen by some as ‘unknown’.
Below, Rob Drijkoningen, managing director of emerging market debt at Neuberger Berman, tells International Investment’s Gary Robinson, during a recent visit to the firm’s offices in the Hague, in the Netherlands, how this often-overlooked asset class might just be one of 2017’s more interesting investment stories.
It probably shouldn’t come as a surprise to discover that Dutch asset management companies approach their craft differently from asset managers in other parts of the world – combining the focused with the relaxed, for example. This is, after all, a country in which a long history of strict Calvinism exists alongside a culture of coffee shops that offer rather more than caffeine to their customers.
But it’s clear from meeting Neuberger Berman’s Rob Drijkoningen, that it is the former – the focus – that takes precedence here, and that like the proverbial swan, there is plenty of activity beneath the calm and composed surface.
Indeed, Drijkoningen, pictured above and left at his offices in the Netherlands, is working across three time zones with staff in Singapore, The Hague and Atlanta, managing a team of 28 people globally.
So, how does he keep on top of such a vast and varied landscape?
“We do work across three zones with two bases in the EMEA time zone and from Atlanta in the US we cover the South America time zone,” he says. “We have a co-head structure, so we have an overlap in the morning in Asia and I have my co-head in Atlanta. But we have very capable people here. We don’t need a hierarchy per se to get our work done.”
When investors think of emerging markets, they have tended to believe that they are riskier than developed markets (but not as risky as frontier markets). However, given the impact of factors such as Brexit and Trump and the impact on traditional thinking about market risk, this is arguably no longer the case for places such as the US and UK.
‘Developed markets have risks’
“It shows that developed markets have their own risks as a well,” Drijkoningen says. “There is high debt to GDP [ratios] in the UK and Europe but also in the US and Japan. Certain risks are even lower in emerging markets than they are in developed markets.
Name: Rob Drijkoningen
Job: Managing director and co-head Emerging Market Debt, Neuberger Berman
Company: Neuberger Berman
Educated: Macro-Economics degree from Erasmus University in Rotterdam.
“Trade is an area of risk for emerging markets; indeed, the likes of Mexico and those countries that are, say, recipients of remittances – especially central American countries like Guatemala, El Salvador, Honduras – have got relatively large contributions to GDP in terms of the influx of remittances that could be under some pressure.”
And what of the UK’s Brexit? Drijkoningen says that there has been “a lot of emotion” on both sides of the North Sea, but hopefully a compromise can be reached.
“The Netherlands has been pro trade, pro open markets, just like the UK. And the [UK financial regulator] the FCA has been very strong across the EU and that impact and ability shape the markets will be lost,” he says.
“London has very strong position still, but some banks will take actions and move. Some Japanese banks have already taken more positons in Amsterdam.”
2017 EMD opportunities
Geographically and generically there is a theme in emerging markets that Drijkoningen points to: “We look at who is doing the right thing”.
“Who is doing the reforms and not half-hearted reforms but true reforms like what we have seen in Indonesia, India and Argentina. Brazil is starting to embrace that. Also, countries like China. But we are focused on quality and the quality of growth and leverage.”
“[There are] other opportunities in Eastern Europe, such as Serbia, Croatia, Romania and even the Ukraine. The anchor of the EU is a great incentive. Ukraine still pays a high-risk premium on their debt. If they do the right thing, then this will contract and there could be some outperformance.”