With interest rates set to remain low, developed markets are expected to continue along the path of low growth for the foreseeable future, leading many investors to assess other investment opportunities to achieve yield, most notably emerging markets. As we look to the year ahead, analysts from the BlueBay Asset Management Emerging Markets team examine a range of sectors and discuss where they see value in the coming months.
|
1. Utilities
|
We anticipate that the utility sector will continue enjoying its traditional low-beta status amid a structural and global push for increased participation of renewables in the generation sector. This will likely result in continued, or even improved, conditions for green energy companies, as we have seen in China and Chile. The pace of investment spending will be tied to prospects for economic growth and infrastructure quality, making us cautious on Indian names as we anticipate capital expenditures will remain elevated. Elsewhere, idiosyncratic stories are at play with a long-needed business reorganisation in Eskom and the regulatory regime in Argentina facing significant risk of change, making us cautious on the sector. |
|
Real estate faces a mixed picture for 2020. However, some attractive risk-rewards in the Asian high-yield sub-sector remain. We expect stabilisation to continue in the Chinese market and see room for spreads to tighten further as the fundamentals of the top high-yield developer names should remain well supported through the year. We are more negative on the residential sector in the UAE where we forecast the supply/ demand picture to continue to deteriorate and negatively impact the credit of domestic developers. We see Dubai being the most vulnerable region in this regard and believe there's still some way to go before we see a recovery in Abu Dhabi. |
|
The outlook for domestically oriented consumer credits in 2020 is mixed given weak growth dynamics in multiple countries. We are cautious on retailers, particularly in Latin America, and are neutral on gaming in Asia given that the sub-sector's positive cash generation is reflected in pricing. We are positive on healthcare and education in MENA, where secular growth prospects are proving beneficial. Food producers positively exposed to the impacts of the African Swine Fever outbreaks also look attractive. Elsewhere, we are encouraged by stabilisation in pulp prices, which could facilitate sector improvement over the next 24 months and potentially benefit top-quartile producers. |
|
Going into 2020, we are taking a bottom-up view on the telecoms segment of the market, which results broadly in a neutral sector allocation. While growth has generally slowed, regulation is becoming more supportive and capex requirements are shrinking, resulting in a positive outlook for moderately leveraged credits. We are currently finding the most value in telecom infrastructure providers in Africa, where a combination of positive growth, robust cash flows and relatively low leverage bodes well for sector performance. |
|
The outlook for global metals and mining names in 2020 is primarily linked to the outcome of the trade war, as almost without exception, the demand outlook for most key hard commodities is driven by China. We like names which are more insulated from this dynamic, either via low leverage and cash costs or with product baskets tilted towards precious metals, which performed well in 2019. We are cautious on certain names with excessive leverage. |
