JPMORGAN has lowered its view on emerging markets sovereign debt in dollars, bank analysts said in a Thursday note.
“We think valuations near historical tights may not withstand a larger correction in risk assets,” said JPMorgan analysts including Ben Ramsey, the bank’s head of emerging markets sovereign strategy.
With signs of weakness in the US economy, the bank moved its recommendation on sovereign and semi-sovereign dollar debt included in its EMBI Global Diversified index to “underweight” from “market weight.”
“We express our move to UW by dialing down risk exposure in the lower-rated space, while keeping names where we see positive catalysts,” JPMorgan said.
The bank removed Egypt from its overweight list “due to crowded positioning” while adding Senegal and Dominican Republic to its underweights.
The note singled out Ecuador and Argentina as positive stories, the former on the back of a bet on an election win from incumbent Daniel Noboa in April, and the latter on support from the IMF and the gradual removal of capital controls.
Issuance hit a year-to-date record according to the bank’s numbers, with US$77 billion the highest ever total over the first two months of the year.
Even if overall issuance remains tilted toward investment grade sovereigns, it was the February with the largest number of high-yield issuers with nine, the bank said. REUTERS
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