UBS fund manager likes China's junk debt but is skeptical on India
Shamaila Khan at UBS Asset Management has deployed a somewhat counterintuitive strategy for bond investments.
The head of fixed income for emerging markets is breaking with the likes of Goldman Sachs Group Inc. and is steering clear of investor favorite Indian government debt, while embracing volatile Chinese high-yield bonds, which have suffered from a prolonged property crisis.
The gist of her strategy — which has allowed the UBS Emerging Economies Global Bond Fund to beat 89% of peers over the past year — is to seek out areas where she thinks market risk is mispriced. For India, she says the market is too sanguine about Prime Minister Narendra Modi’s electoral setback and the complexities of a coalition government.
“In India, the market underestimates the risk, while in China high yield, Sri Lanka and certain other corners of EM, the market overestimates the risk,” Khan, who manages combined assets of roughly $1 billion, said in an interview this week. “We are trying to look for countries where the market has overestimated the risk.”
Pakistan has been a top pick, Khan said. Its US-currency debt has rebounded over the past year.
Chinese high-yield dollar bonds have also climbed, with Bloomberg’s index returning nearly 10% this year. Fueling the recovery has been Beijing’s attempt to put a floor under the property crisis with a broad rescue package in May.
“A lot of risk premium” on Chinese junk bonds has already been priced in, according to Khan. “That is a view we have had for several months,” she added.
