HSBC Global Asset Management, an arm of HSBC Holdings (HSBA.L), is buying bonds of commodity exporting countries because their valuations have dropped so far with the plunge of oil prices, an executive said.
The firm, which managed $454 billion of assets at the end of December, is also increasing its exposure to beaten-down currencies of countries such as Russia and Brazil because of attractive valuations, said Olga Yangol, a vice-president and senior product specialist for emerging markets.
"We are focusing back on commodity exporters, where valuations have become more attractive," Yangol said.
HSBC said assets under management at its emerging market-focused fund rose 30 percent last year and were continuing to grow, but it did not provide specific figures.
"We are taking the opportunity to add exposure in Brazil from the beginning of this year. Not just sovereign but to some corporate names which have limited exposure to the scandal, but have sold off on overall headline risk," Yangol said.
The corruption scandal battering Brazilian energy giant Petrobras has cost bond holders billions of dollars, and with the oil producer facing massive write-downs, investors are bracing for more losses.
The asset manager is picking companies in the Brazilian energy and construction sectors which suffered regardless of any link to Petrobras or the scandal and have diversified global sources of revenues, Yangol said.
Markets may suffer more volatility as they brace for the U.S. central bank to start hiking interest rates later this year; Yangol described the jitters as an opportunity.
"When the actual hiking cycle begins, there will be more volatility and potentially spread widening. For us that presents an opportunity to add exposure in the strongest countries."
Within its emerging market portfolio, HSBC Global Asset Management's primary focus is investment grade debt, which provided a return of 9.1 percent in 2014, compared to a negative yield of 3.2 percent for high-yielding bonds.
But the firm is also cherry-picking emerging market currencies that have been battered by a resurgent U.S. dollar, the commodity price plunge and credit rating actions.
HSBC Global Asset Management has gone 18 percent long on emerging market currenciesfrom being flat at the end of January, Yangol said.
In addition to the Brazilian real BRL= and the Russian rouble RUB=, the firm is long on the Mexican peso MXN= and the Polish zloty PLN=.
Yangol said interest rates or carry in some of the beaten-down currencies had improved, and predicted more opportunities in currencies ahead. But she added, "I should emphasize there is further room to adjust in other currencies."
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