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How Will Tapering Affect EM Bonds?(4:08)

Eric Fine
Portfolio Manager, Van Eck Unconstrained Emerging Markets Bond Fund

February 19, 2014
          

Tapering Effect on EM Bonds


ERIC FINE: How tapering will affect emerging markets bonds is a very a frequent question I get. The elements of my answer are, number one: this has been discussed for a long time.  It has been on the front page of every financial newspaper for a period of time and I think it's substantially discounted. I was at the IMF annual meetings and everyone expected rates to rise.  Everyone was focused on the taper, so I think a good amount of it is priced in.


Number two: specific EM countries have had time to react.  A number of countries have raised interest rates by 200 basis points before there was any move by the Fed.  The Fed is guiding interest rates lower and they’re just reducing their intervention in the market. But they are also saying they want rates to be at a certain level.  


Number three: if interest rates are rising because of demand, that's a good thing.  It means we're going to be buying more flat glass from Mexico, more soybeans from Argentina so their currencies can come under upward pressure.


The last point I'll make is the taper will be a challenge for some emerging markets economies.  In general, I have the same attitude towards the emerging markets – I like some and I don't like others. There are a number of countries that have not hiked interest rates in anticipation of tapering or are just generally more vulnerable to rising rates.  South Africa comes to mind; Turkey comes to mind; India comes to mind.  I don't have a blanket answer that says the taper is just not an issue for EM, but I do think it's been priced in generally in terms of the U.S. bond market.  I think some countries have been able to react, and if the tapering's happening because of good final demand, because economies are growing, then that's a high-quality problem for EM countries.  We're buying more of their stuff, putting upward pressure on their currencies.


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IMPORTANT DISCLOSURE


The views and opinions expressed are those of the speaker and are current as of the video’s posting date. Video commentaries are general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. All performance information is historical and is not a guarantee of future results. For more information about Van Eck Funds, Market Vectors ETFs or fund performance, visit vaneck.com. Any discussion of specific securities mentioned in the video commentaries is neither an offer to sell nor a solicitation to buy these securities. Fund holdings will vary. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index. Information on holdings, performance and indices can be found at vaneck.com.  


Please note that Van Eck Securities Corporation offers investment products that invest in the asset class(es) included in this video. Investments in emerging markets securities tend to be more volatile and less liquid than securities traded in developed countries. Emerging markets debt investments are subject to credit risk, interest rate risk, sovereign debt risk, tax risk, and risks associated with non-investment grade securities.


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How Will Tapering Affect EM Bonds?(4:08)
Eric Fine
Portfolio Manager, Van Eck Unconstrained Emerging Markets Bond Fund

posted on February 19, 2014


“I don't have a blanket answer that says the taper is just not an issue for EM, but I do think it's been priced in generally. I think some countries have been able to react, and if tapering's happening because of good final demand, because economies are growing, then that's a high-quality problem for EM countries.”


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posted on February 19, 2014


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