Pacific Investment Management Co., manager of the worldâ€™s biggest mutual fund, is prepared to cut its holdings of emerging-market corporate debt next year on concern a flood of new sales and further economic slowdown in China will put an end to a 12-month rally in the securities.
Chinaâ€™s gross domestic product will expand 7.7 percent this year, according to the median estimate of economists surveyed by Bloomberg, the slowest pace since 1999. Photographer: Keith Bedford/Bloomberg
The plunge in yields to a record 4.73 percent since the Federal Reserve unveiled a third round of asset purchases known as quantitative easing in September means some corporate bond prices donâ€™t accurately reflect the chances of further economic deterioration in Asia or Europe, said Brigitte Posch, who helps manage about $92 billion in emerging-market corporate bonds for Newport Beach, California-based Pimco.
â€œThe rally will probably continue until the end of the year, but the market is starting to get weaker,â€ Posch said in an interview in Rio de Janeiro on Oct. 22. â€œAt the beginning of next year, depending where the credit spreads are, I will probably be increasing my underweights. If we have two more months of this type of rally, Iâ€™d rather be more defensive.â€
The average yield on emerging-market corporate bonds fell 155 basis points, or 1.55 percentage point, this year to a record low on Oct. 19, according to the JPMorgan Chase & Co. CEMBI gauge. The average yield for U.S. investment-grade debt declined 96 basis points in that period to 2.73 percent, according to data compiled by Bank of America.
An underweight allocation means owning less of a security or sector than is usually held in a benchmark portfolio.
Via – Bloomberg
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