The view that emerging markets are safe havens is “dangerous” and “complete rubbish”, according to M&G bond fund manager Mike Riddell.
Speaking at an M&G investment briefing in London last week, Riddell, who runs the £74m M&G international sovereign bond and the £374m M&G index-linked bond, said emerging market debt recently gained favour as a safe asset.
He said: “There is a view that emerging markets are a safe haven from developed market woes. This is dangerous. It is one you heard a lot last summer and people realised it is completely rubbish.” He said emerging market local currency debt fell by 10 per cent in a matter of weeks in August.
Riddell said he expects a risk-off period to come following continued problems in the eurozone, which he said will not be a good time to own emerging market debt.
He added: “The bubble already looks like it is bursting in China. The country’s GDP growth may be 9 per cent or 10 per cent a year, which was sustainable in the 1990s but it is not sustainable any more.”
Riddell said China should be growing at a long-term, sustainable growth rate of 5 to 6 per cent a year.
Bestinvest senior analyst Ben Seager-Scott says: “Emerging market countries do not have as much debt as the developed world but to tout them as lower risk is wrong.”