LONDON (Reuters) - Aberdeen Standard Investments is bullish on Russian debt, seeing any additional U.S. sanctions as an opportunity to boost holdings of rouble-denominated government paper, the asset manager’s head of emerging debt said on Monday.
Brett Diment, who oversees around $13 billion of assets under management, told the Reuters Global Investment Outlook Summit that Washington’s willingness to utilize the dollar’s power was a fact many money managers had to get used to.
He said his firm expected additional restrictions on Russia, including some that could prevent U.S. investors buying freshly-issued debt - but nothing more serious that would force people to dump what they already own.
Aberdeen Standard had been “top-slicing” some of the recent profits made on Russian rouble-denominated bonds, known as OFZs. But it was preparing to buy more if new sanctions triggered a knee-jerk selloff.
“If we get sanctions we would probably use that as an opportunity to add a bit of (Russia) risk,” Diment said.
While Russia’s economic growth is lackluster and highly reliant on oil, sanctions in place since 2014 have meant companies have been prevented from borrowing much on world markets, and most of them are just repaying maturing debt. That has supported bond prices as there is less debt to go around.
“I say they’ve got great, classic bond fundamentals ... It’s just a question of when you top up positions really,” Diment told the summit conducted at Reuters’ office in London.
The other main factors that will impact the broader complex of emerging markets — Aberdeen invests in as many as 80 countries — will be the Sino-U.S. trade war and how long the dollar’s current rise lasts.
Many fund managers were gloomy on the dollar at the start of 2018 and were wrongfooted by its steady rise from February. Its strength has taken emerging currencies more than 5 percent lower this year on average .MIEM00000PUS and hit returns on emerging stocks and bonds.
The greenback hit a 16-month high on Monday, but many reckon that as the twin U.S. deficits — the fiscal and current account gaps — come into focus, the dollar rally could turn. That would potentially provide some respite to emerging assets.
“If growth starts to tail off a bit and you’ve got this big fiscal deficit and still going to have quite a decent current account deficit, then maybe the market could completely flip on the dollar,” Diment said.
Diment also said that for next year:
* Aberdeen Standard slightly long on Turkey after turbulence
* Flat on Mexico, sees lots of risk, on new president, Trump
* Brazil “a core long” but has trimmed position slightly
* China policy response to be key for North Asia debt
* Argentina looks relatively attractive after 2018 shakeout
* Inflows from institutional funds into EM following rout
* India FX looks “pretty cheap” at current levels
* Oil could dive on any signs of regime change in Venezuela
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Additional reporting by Ritvik Carvlho; editing by John Stonestreet