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EM Debt at PIMCO: Well Positioned for Opportunity

There are three compelling reasons to consider emerging market (EM) debt today – and four key reasons why PIMCO is well-positioned to be your source for EM. Learn about the opportunities we see and the potential benefits of our EM platform.

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Text on screen: PIMCO

Images of emering market countries

Text on screen: Pramol Dhawan, Head of Emerging Markets Portfolio Management

Pramol: We often get asked, is emerging markets debt attractive now? And the answer is yes, for three main reasons.

Full page list graphic – Title: Why emerging market debt is attractive:  Bullets: Higher yields, Historic default rates for EM are similar to corporate debt, EM premium due to home bias

Firstly, for higher yields. We’re in an environment right now of very low nominal and real interest rates, and I think that’s going to push capital naturally away from the developed markets into the higher real rate yielding world, much of which resides in the emerging market landscape.

Secondly, in emerging markets, historical default rates are actually very similar to corporate debt,

Full page chart titled: Historical default rates: emerging markets vs. developed markets corporates. Bar charts shows historical default rates for emerging markets (EM) and developed market (DM) corporates across Aaa, Aa, A, Baa, Ba and B-rated bonds as of May 2020. Default rates are 0% for Aaa and Aa for both EM and DM. For A, DM defaults are up slightly and EM is at 0%. For Baa, DM defaults are up 0.1% and EM is at 0%. For Ba, both DM and EM defaults are 0.5%, and for B, DM defaults are up 2.4 % and EM is at 2.5%.

The most important point to highlight is the underlying risk to bondholders in emerging markets  are similar to that of U.S. corporate bonds, and yet EM bonds tend to offer materially high yields.

So what explains this EM yield advantage if the underlying default risks are similar?

The third reason is EM premium. Well, we suspect that comes down to behavioral factors. Many investors don't traffic in emerging markets due to their home bias.

The EM asset class offers structural risk premiums, and much of that is due to investors not navigating within that asset class due to home biases.

Full page list graphic -- Title: Why does PIMCO have advantages in managing EM debt?  Bullets: Scale, Global macro expertise, Bottom-up credit analysis, Actively sourcing

So why does PIMCO potentially have advantages in managing EM debt? Firstly, our scale. PIMCO’s been a long term investor in emerging markets and is quite often one of the largest and most significant investors in both the hard currency space and in the local currency space. This often gives us the opportunity to dictate pricing and terms for new issues and new deals.

Secondly, global macro expertise. EM is often the tail that gets wagged by the dog. Put very simply, what the Fed does matters for emerging markets, and through the investment committee, through our global advisory board, through our regional portfolio committees, as well as our cyclical and secular forum, we effectively get the top down expertise to help us to guide the EM investment narrative.

Thirdly, our bottom up credit analysis. EM is a volatile asset class, and in a volatile asset class. Our bottom up credit research enables us to do the analysis and the due diligence on corporates, quasi-sovereigns, and sovereigns to make sure that we are being very risk aware.

And finally, active sourcing. We have the ability to source opportunities that are off the radar screens for index tracked funds, crossover capital, or smaller boutique investment firms.

That independent thinking and analysis enables us to think critically about investment decisions within the emerging market world and helps us to carve our own path in terms of decisions that make their way onto our portfolios.

Split Screen: Text on Left – EM debt can help investors meet their income objectives in a low-yield world, Image on right: Emerging Market country.

To summarize, EM debt can help investors potentially meet their income objectives in a low yield world.

And there are many advantages to partnering with a strong active manager

Images of PIMCO trade floor

that has both the scale and the expertise to focus on risk mitigation as well as identifying opportunities.

Text on screen: For more insights and information, visit pimco.com

Text on screen: PIMCO 50 1971-2021

Disclosures


IMPORTANT NOTICE

Please note that the following contains the opinions of the manager as of the date noted and may not have been updated to reflect real time market developments. All opinions are subject to change without notice.

Past performance is not a guarantee or a reliable indicator of future results.

Management risk is the risk that the investment techniques and risk analyses applied by an investment manager will not produce the desired results, and that certain policies or developments may affect the investment techniques available to the manager in connection with managing the strategy. All investments contain risk and may lose value. Investing in foreign-denominated and/or -domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Sovereign securities are generally backed by the issuing government. Obligations of U.S. government agencies and authorities are supported by varying degrees, but are generally not backed by the full faith of the U.S. government. Portfolios that invest in such securities are not guaranteed and will fluctuate in value. Currency rates may fluctuate significantly over short periods of time and may reduce the returns of a portfolio. Diversification does not ensure against loss.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO Europe Ltd (Company No. 2604517) is authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. The services provided by PIMCO Europe Ltd are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Europe GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Europe GmbH Italian Branch (Company No. 10005170963), PIMCO Europe GmbH Spanish Branch (N.I.F. W2765338E) and PIMCO Europe GmbH Irish Branch  (Company No. 909462) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 32 of the German Banking Act (KWG). The Italian Branch, Irish Branch and Spanish Branch are additionally supervised by: (1) Italian Branch: the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act; (2) Irish Branch: the Central Bank of Ireland in accordance with Regulation 43 of the European Union (Markets in Financial Instruments) Regulations 2017, as amended; and (3) Spanish Branch: the Comisión Nacional del Mercado de Valores (CNMV) in accordance with obligations stipulated in articles 168 and  203  to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008, respectively. The services provided by PIMCO Europe GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication. | PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2) . The services provided by PIMCO (Schweiz) GmbH are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. PIMCO Asia Limited is registered as a cross-border discretionary investment manager with the Financial Supervisory Commission of Korea (Registration No. 08-02-307). The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Investment Management (Shanghai) Limited Unit 3638-39, Phase II Shanghai IFC, 8 Century Avenue, Pilot Free Trade Zone, Shanghai, 200120, China (Unified social credit code: 91310115MA1K41MU72) is registered with Asset Management Association of China as Private Fund Manager (Registration No. P1071502, Type: Other) | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862. This publication has been prepared without taking into account the objectives, financial situation or needs of investors. Before making an investment decision, investors should obtain professional advice and consider whether the information contained herein is appropriate having regard to their objectives, financial situation and needs. | PIMCO Japan LtdFinancial Instruments Business Registration Number is Director of Kanto Local Finance Bureau (Financial Instruments Firm) No. 382. PIMCO Japan Ltd is a member of Japan Investment Advisers Association and The Investment Trusts Association, Japan. All investments contain risk. There is no guarantee that the principal amount of the investment will be preserved, or that a certain return will be realized; the investment could suffer a loss. All profits and losses incur to the investor. The amounts, maximum amounts and calculation methodologies of each type of fee and expense and their total amounts will vary depending on the investment strategy, the status of investment performance, period of management and outstanding balance of assets and thus such fees and expenses cannot be set forth herein. | PIMCO Taiwan Limited is managed and operated independently. The reference number of business license of the company approved by the competent authority is (109) Jin Guan Tou Gu Xin Zi No. 027. 40F., No.68, Sec. 5, Zhongxiao E. Rd., Xinyi Dist., Taipei City 110, Taiwan (R.O.C.). Tel: +886 2 8729-5500. | PIMCO Canada Corp. (199 Bay Street, Suite 2050, Commerce Court Station, P.O. Box 363, Toronto, ON, M5L 1G2) services and products may only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose. | PIMCO Latin America Av. 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CMR2021-0510-1642171

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