ABN AMRO’s advice: sell emerging markets bonds

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ABN AMRO has changed its rating for bonds from emerging markets to underweight. The reason for this downgrade to ‘sell’ is that these bonds are now trading for as much as they were before the US elections last November, while the risks for emerging markets have increased sharply as a result of the new US President’s policy actions.

“‘The new President of the United States has shown himself to be less moderate than the financial markets initially expected. His anti-immigration policy and his decision to cancel trade agreements are hurting international trade, and emerging markets have been hit harder than most,’ explains Mary Pieterse-Bloem, Head of Bond Investments for ABN AMRO Private Banking International.

Last July, when bonds from emerging markets offered attractive returns and the economic outlook for those countries was improving, ABN AMRO advised clients to buy. The bank downgraded its advice to ‘hold’ after Donald Trump was elected President of the US. The market’s initial reaction at the time was a sharp downturn in the prices of these bonds. However, even these bonds flourished in the euphoria of growth that Trump triggered. Yet ABN AMRO nevertheless believes that the price increases in recent months do not reflect real value, given Trump’s tough anti-globalisation measures, and the bank has now decided to downgrade its advice from neutral to underweight.

Mary Pieterse-Bloem continues, ‘Looking at the prices at which the more high-risk investments have been traded over the past few days, the financial markets seem more cautious now. Earlier this week, our currency experts highlighted a degree of weakness in the currencies of the emerging markets that are most sensitive to fluctuations in international trade. If this trend continues, bond prices in those emerging markets might suffer. It’s better to sell now, while those prices are still comfortable.’

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