News Overview

EM Corporate Bond Newsletter

March 2025

Monthly report of the fund management

Emerging market corporate bonds achieved a solid return of 1.6% (in US dollar terms) in February. EM investment-grade bonds (+1.7%) performed better than EM high-yield bonds (+1.4%) due to the duration effect caused by the tightening of US government bonds. The yield on 10-year US Treasuries fell by 32 basis points last month and reached the level of early December at 4.2 %. Spreads on most corporate bonds remained virtually unchanged in February despite slight volatility. Despite the negative net supply of issues and good fundamental data, a slight widening of spreads is noticeable, indicating uncertainty.

 

Macro Overview

With the election of Donald Trump as US President, optimism rose like a hot air balloon. Economic growth took off, and the prospect of tax cuts, deregulation, lower energy prices, a smaller budget deficit and a more efficient state sent share prices and business and consumer sentiment soaring. The implicit expectation was that the US would maintain its exceptional position in economic growth. It is important to remember that the US was still in the boom phase of the economic cycle at the end of the fourth quarter. In 2024, inflation-adjusted gross domestic product grew by 2.8 % (year-on-year).

But an economic boom is like a party - it has to end at some point. The only thing missing are the weak points that a trigger hits. These weak points are high US share price valuations and falling economic growth indicators in the first quarter. The trigger? Increasing uncertainty and an accompanying deterioration in sentiment, which can be attributed to the confusing policies of the US administration. The increased uncertainty has dampened sentiment and relates in particular to:

  • the confusing approach to customs policy (introduction of tariffs followed by deferrals),
  • the large-scale redundancies among government employees and
  • the sharp changes in foreign policy.

In terms of trade policy, it was initially hoped that there would only be selective tariff increases for some countries which could possibly be negotiated away. In the meantime, fears have risen that broad-based tariff increases could be implemented for many countries. Expectations are shifting from the "trade conflict" scenario towards a "trade war". Global trade and global manufacturing could decline. Export-orientated countries that are closely intertwined with the USA, such as Mexico and Canada, would suffer disproportionately.

Emerging Markets Overview

The emerging markets have so far proved surprisingly resilient to the turbulence surrounding Trump 2.0. As reported in the last newsletter, Mexico stands out among Latin American countries in many respects. Exports account for almost 40% of GDP (the Latin American average is 24%), trade is extremely concentrated with the US (80% of exports, while the Latin American average is 33%) and has a massive trade surplus with the US (USD 172bn, second only to China at USD 295bn).

Most Latin American countries have a trade deficit with the US that protects them from tariffs, and the US surplus with these countries has increased over time. Latin America (excluding Mexico) hardly plays a role in the US trade deficit. Argentina and Brazil are not at risk given their deficits with the US. As far as spreads are concerned, we believe that the darkest storm clouds have already been priced in.

At just under USD 66 per barrel, spot oil prices are at a lower level than a year ago and fell by around 4% in February. The market is therefore anticipating an increase in energy supply as peace talks in the Russia-Ukraine conflict are making progress and could possibly lead to an easing of sanctions against Russian energy exports.

However, lower oil prices have only a limited impact on emerging market corporate bonds. Despite the high weight of the energy sector (15%) in the JPM CEMBI Broad Div. Index, we see a mixed impact on EM corporate performance in a lower oil price scenario. Of course, lower prices could have a negative impact on these issuers. However, for others, lower fuel prices could help reduce cost of sales. Much also depends on how long oil prices remain low. Historical data shows that overall, EM corporate bond spreads have a low correlation with oil prices. State-owned oil companies generally perform better, while smaller independent players are more vulnerable to lower oil prices.

Overview of EM Companies

The Chinese government has taken a step further in normalising the high-yield real estate sector as provinces resume issuing special land reserve bonds to buy unused land. Guangdong and Beijing announced issuance plans of USD 4.2bn and USD 1.6bn respectively to acquire idle land and inject capital into distressed developers. China is considering lifting the price cap on unsold property purchases by the local government. Chinese property bonds have rallied since the beginning of the year as last year's stimulus measures helped stabilise property prices. Spreads on Chinese property have tightened since the beginning of the year. We remain neutrally weighted in the sector and are taking a very selective approach.

The announcement of the Chinese AI DeepSeek as a competitor to ChatGPT has caused quite a stir - DeepSeek is said to require less computing power and is therefore more energy-efficient. This technological feat has given China a real boost to its self-confidence. President Xi Jinping didn't take long to get round to it and promptly met with business leaders from the private sector, including Alibaba co-founder Jack Ma and Liang Wenfeng, founder of DeepSeek. The aim of the meeting: to strengthen the economy and take China's technological capabilities to the next level. However, DeepSeek is rather shy when it comes to political issues and, with a little smirk, sticks strictly to the Chinese government's narrative. Spreads are already pretty tight in this area, but thanks to the measures, they are well supported.

Some companies have once again delivered strong results and kept their key figures on track.

This also applies to the logistics company Rumo Brasil, one of our top picks which has been able to hold its own against its competitors in the sector. We expect spending to stabilise in the coming years.

After a turbulent January full of issues, we took things a little easier on the emissions side in February, as the prices were unfortunately not particularly attractive.

Outlook & Performance

Unfortunately, the growing global uncertainty, including the developments surrounding Trump, remains. Therefore, we stay cautious and wait-and-see positioned and stick to our low beta strategy. We focus on segments that could be more resilient to US-tariff risks. Our preference for Latin America over Asia also remains unchanged.

EM corporate bond fundamentals remain promising, although the outlook for tariffs and other policy measures in the US is causing some uncertainty. JPM CEMBI BD has delivered robust returns with stable spreads in recent months which we believe contributes to the optimistic sentiment. Spreads are almost unchanged since the beginning of the year at 212 basis points (spread to worst), with a yield to worst of 6.37%. A key factor that could influence the extent of spread widening would be recession concerns.

Nonetheless, we believe EM corporate bonds are more resilient as they are of higher quality, less affected by volatile frontier markets, have strong standalone fundamentals and a shorter duration. Note: Prognoses are not a reliable indicator of future performance. Please note that investing in securities involves risks as well as opportunities.

Performance opportunities for the funds:

  • US tariff policy remains in the spotlight which continues to offer investment opportunities
  • Falling yields gain momentum

Performance risks for the funds:

  • There are growing signs that the White House is prepared to short-term economic weakness
  • Spreads are gradually starting to widen

Overview Performance

ERSTE BOND EM CORPORATE

Note: Performance chart since fund launch. Past performance does not allow any reliable conclusions to be drawn about the future performance of the funds. The performance is calculated according to the OeKB method. The performance assumes a full reinvestment of the distribution and takes into account the management fee and any performance-related remuneration. The one-off front-end load that may be incurred upon purchase and any individual transaction-related or ongoing income-reducing costs (e.g. account and custody account fees) are not included in the presentation.

Institutional share classes

AT0000A1W4B7 = Distributing share (A)
AT0000A1W4C5 = Accumulating share (VT)

Retail share classes

AT0000A05HQ5 = Distributing share (A)
AT0000A05HS1 = Accumulating share (VT)

ERSTE BOND EM CORPORATE IG

Note: Performance chart since fund launch. Past performance does not allow any reliable conclusions to be drawn about the future performance of the funds. The performance is calculated according to the OeKB method. The performance assumes a full reinvestment of the distribution and takes into account the management fee and any performance-related remuneration. The one-off front-end load that may be incurred upon purchase and any individual transaction-related or ongoing income-reducing costs (e.g. account and custody account fees) are not included in the presentation.

Institutional share classes

AT0000A1Y9D0 = Distributing share (A)
AT0000A1Y9H1 = Accumulating share (VT)

Retail share classes

AT0000A0WJX7= Distributing share (A)
AT0000A0WJZ2 = Accumulating share (VT)

ERSTE RESPONSIBLE BOND EM CORPORATE

Note: Performance chart since fund launch. Past performance does not allow any reliable conclusions to be drawn about the future performance of the funds. The performance is calculated according to the OeKB method. The performance assumes a full reinvestment of the distribution and takes into account the management fee and any performance-related remuneration. The one-off front-end load that may be incurred upon purchase and any individual transaction-related or ongoing income-reducing costs (e.g. account and custody account fees) are not included in the presentation.

Institutional share classes

AT0000A1PY56 = Distributing share (A)
AT0000A2MKX2 = Accumulating share (VT)

Retail share classes

AT0000A13EF9 = Distributing share (A)
AT0000A13EH5 = Accumulating share (VT)

Overview performance contribution in %

Performance contribution at country level

(relative to the benchmark)

Performance contribution at share level

(relative to the benchmark)

Source: Erste AM; Calculation period February 2025; Contribution to gross excess returns in %, Fund: ERSTE BOND EM CORPORATE, Benchmark: J.P.Morgan CEMBI Broad Diversified Composite Index hedged in EUR; Gross performance data (without deduction of management fee); The companies listed here have been selected as examples and do not constitute an investment recommendation. In the context of active management, the above portfolio positionings may change at any time. 

Fund management

Lead-Manager Péter Varga

...has been a member of the Credits team at Erste Asset Management since 2005. As a Senior Professional Fund Manager, he is responsible for various emerging market corporate bond strategies in the team. He has more than 20 years of investment experience. Before joining the company, Péter Varga was responsible for convertible bond and corporate bond funds and the management of two total return funds at Union Investment (Frankfurt/M.).

Co-Manager Thomas Oposich

...is a senior fund manager in the fixed income division of Erste Asset Management. His current focus is on emerging market corporate bonds. Thomas Oposich has been with the company since 2005 and has many years of experience in bond management. During his career, he has been responsible for a broad range of bond funds consisting of US government, money market and corporate bonds, as well as mortgage-backed securities and euro government bonds.

Co-Manager Agne Loibl

...has been with Erste Asset Management since 2010. As a Senior Fund Manager in the Credits team, she is responsible for emerging market investment grade corporate bonds and the Asian markets. Agne Loibl has extensive experience in the area of credits. She started her career in research at ESMT Customized Solutions in Berlin and moved to Risk Management Securitisations at Erste Bank in 2007. 

Relevant new issues

There were no relevant new issues.

Overview Erste AM EM corporate strategies

Source: Erste Asset Management; Data as of 28.2.2024

Ratings

For a further analysis, you can view our fund at:

Morning Star Rating:                5 Stars
Morning Star Sust. Globes:     3 Globes
Scope Rating:                           A – 99/100

Contact us

Personal contact with you is particularly important to us.
If you have any questions about our investment solutions, our team will be happy to help you.

E-Mail: institutional@erste-am.com

Risk notes for the mentioned funds

Disclaimer

This document is an advertisement. Please refer to the prospectus of the UCITS or to the Information for Investors pursuant to Art 21 AIFMG of the alternative investment fund and the Key Information Document before making any final investment decisions. All data is sourced from Erste Asset Management GmbH, unless indicated otherwise. Our languages of communication are German and English.

The prospectus for UCITS (including any amendments) is published in accordance with the provisions of the InvFG 2011 in the currently amended version. Information for Investors pursuant to Art 21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in connection with the InvFG 2011.

The fund prospectus, Information for Investors pursuant to Art 21 AIFMG, and the Key Information Document can be viewed in their latest versions at the  website www.erste-am.com within the section mandatory publications  or obtained in their latest versions free of charge from the domicile of the management company and the domicile of the custodian bank. The exact date of the most recent publication of the fund prospectus, the languages in which the Key Information Document is available, and any additional locations where the documents can be obtained can be viewed on the website www.erste-am.com. A summary of investor rights is available in German and English on the website www.erste-am.com/investor-rights as well as at the domicile of the management company.

The management company can decide to revoke the arrangements it has made for the distribution of unit certificates abroad, taking into account the regulatory requirements.

Detailed information on the risks potentially associated with the investment can be found in the fund prospectus or Information for investors pursuant to Art 21 AIFMG of the respective fund. If the fund currency is a currency other than the investor's home currency, changes in the corresponding exchange rate may have a positive or negative impact on the value of his investment and the amount of the costs incurred in the fund - converted into his home currency.

Our analyses and conclusions are general in nature and do not take into account the individual needs of our investors in terms of earnings, taxation, and risk appetite. Past performance is not a reliable indicator of the future performance of a fund. Please note that investments in securities entail risks in addition to the opportunities presented here. The value of shares and their earnings can rise and fall. Changes in exchange rates can also have a positive or negative effect on the value of an investment. For this reason, you may receive less than your originally invested amount when you redeem your shares. Persons who are interested in purchasing shares in investment funds are advised to read the current fund prospectus(es) and the Information for Investors pursuant to § 21 AIFMG, especially the risk notices they contain, before making an investment decision.

Please consult the corresponding information in the fund prospectus and the Information for Investors pursuant to Art 21 AIFMG for restrictions on the sale of fund shares to American or Russian citizens. Misprints and errors excepted.

The public sale of shares in the specified fund in Germany was registered with the Federal Financial Supervisory Authority, Bonn, pursuant to the German Kapitalanlagegesetzbuch (KAGB). The issue and redemption of unit certificates and the execution of payments to unit holders has been transferred to the Fund's custodian bank/depositary, Erste Group Bank AG, Am Belvedere 1, 1100 Vienna, Austria. Redemption requests can be submitted by investors to their custodian bank, which will forward them to the Custodian Bank/Depositary of the Fund for execution via the usual banking channels. All payments to investors are also processed via the usual banking clearing channel with the investor's custodian bank.. In Germany, the issue and return prices of shares are published in electronic form on the website www.erste-am.com (and also at www.fundinfo.com). Any other information for Shareholders is published in the Bundesanzeiger, Cologne.

Presentations:

It is expressly noted that presentations shall not be construed as providing investment advice or investment recommendations; presentations simply represent the current market opinion. The presentations are not intended as sales instruments and shall therefore not be construed as an offer to buy or sell financial or investment instruments. The investor shall be solely responsible for any and all decisions that he makes on the basis of this presentation.