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By Eric Jacobson | 04-11-2011 05:18 PM

PIMCO's Lupin: Still Plenty of Value in Emerging-Market Debt

There remains ample opportunity in local emerging-markets debt and particularly in the currency space, says emerging-markets specialist Lupin Rahman.

Eric Jacobson, our director of fixed-income research, recently visited PIMCO's offices and sat down with emerging-markets specialist Lupin Rahman to learn more about how PIMCO is positioning in this increasingly popular area of the global market.

Eric Jacobson: Lupin, thank you so much for being with us today. Appreciate it.

Lupin Rahman: Thank you for having me.

Jacobson: So, Lupin, you're an emerging-markets specialist, and we want to ask you if you would, please, give us a little bit of thumbnail about where things stand in terms of the macro picture, how it effects global, and EM in particular, obviously. Then maybe we'll talk a little bit about what that means for portfolio positioning not only in dedicated PIMCO portfolios but some of the others as well?

Rahman: So, EM is in a very positive environment currently. We're very constructive in terms of the investor investments into the asset class and also the general macro environment.

Rebounding from the crisis has been very strong across all regions. We're seeing some inflationary pressures building in Asia and Latin America, but in general, the overall environment has been extremely positive.

This has been aided to a significant effect by the stronger policymaking and the stronger credibility of EM institutions. So, we're also seeing investments coming into both the local markets and the FX side of the EM strategy.

Jacobson: When you say the FX side, can you explain that a little more?

Rahman: So, in terms of investments into local markets, you've had traditionally the local rates aspect of investments, which have attracted a certain class of investors, and also the currency appreciation and valuation aspect of investors.

In this recent period, we're seeing a strong interest in emerging-market currencies, not only because there is a very strong appreciation story but also because the cyclical trends are pointing to an acceleration of that appreciation story. So, for example, with China de-pegging off the U.S. dollar peg, this allows Asian economies greater scope for allowing their currencies to appreciate. We're also seeing greater valuation trade-off in terms of allowing currencies to appreciate versus using interest rates to combat inflationary pressures.

Another interesting aspect of the recent environment is the U.S. dollar bid. Given the crisis that we saw in the Middle East and in the Eurozone, it's interesting to see that the U.S. dollar bid has been a lot weaker than in previous cycles of crisis. So, all of this points to a more structural interest in emerging markets and in emerging market currencies in particular.

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