Richard House, London-based head of emerging-market debt at Threadneedle Asset Management Ltd., which oversees $97 billion, said he recommends Venezuelan dollar bonds and Brazil’s local-currency debt. He spoke in a briefing in Hong Kong today.
“Our biggest overweight, across all the funds, is Venezuela. The president’s been mismanaging the economy for a couple of years, and has squandered the massive oil reserves. You get paid 12 percent to 13 percent in dollars to long Venezuelan debt. Since I’ve been watching Venezuela for 15 years, they had many excuses to default on their debt but they never did.
“We personally think the market mispriced a willingness to repay debt in Venezuela so at these kinds of spreads, you get paid handsomely for owning Venezuelan debt. Chavez has never been as unpopular locally as he is now so there’s a high chance that Chavez won’t be in power at the close of 2012.
“For Brazil, we’re long the local-currency debt, where yields are around 9 percent. We think the local curve is pricing in far too many hikes, so we’re overweight the very short-end of the domestic yield curve in Brazil. It’s an election year, the last thing they want to do is kill the recovery story. The central bank won’t massively appreciate the real at a time when the current account is turning around.”