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Exclusive: BNP Paribas to launch FMP for HNWIs

Exclusive: BNP Paribas to launch FMP for HNWIs

BNP Paribas Asset Management will introduce a new USD denominated global emerging market (EM) bond fund to private banks in Asia, Citywire Asia can confirm.

Managed by its head of EM debt Bryan Carter, the BNP Paribas Global Floating Rate Portfolio will become available to professional and accredited investors in Singapore and Hong Kong in October.

The fund targets a maximum 25% single sector exposure and maximum 10% single country exposure. It invests in sectors like basic materials, financial, industrial, consumer, and energy, to name a few.

China, India, South Korean, Brazil, Russia, Hong Kong, Indonesia and Turkey are among the countries the BNP Paribas Global Floating Rate Portfolio holds.

In an interview with Citywire Asia, Karan Talwar (pictured), senior investment specialist for EM debt, said the fund’s target maximum allocation is 10% per country and 25% per sector.

‘We do invest in sovereigns and quasi-sovereigns bonds, as well as corporate credits,’ he said.

‘This four-year fixed maturity plan is a unique combination of a floating rate distribution combined with capital prepayment prior to maturity of the fund.

‘This potentially removes both duration and reinvestment risk traditionally included in most of the recent fixed maturity plans.’

As USD denominated EM spreads are now trading at cheap levels, BNP Paribas believes this is the best time to implement a global floating rate bond portfolio.

A floating rate portfolio employing a buy-and-hold strategy can offer additional value proposition by potentially shielding investor returns from rising interest rates, according to Talwar.

He said while EM has gotten a lot of negative headline in recent periods, it is important to look through the noise.

‘The hard currency USD denominated segment of the EM universe has been much more resilient than the local currency EM universe which includes exposure to higher volatility EM currencies.

‘In addition, while total returns in hard currency EM debt has been a bit negative year-to-date, the interest rate or duration component has been a big driver of the negative contribution.

‘By offering a floating rate solution, this strategy is less exposed to interest rate risk,’ he explained.

The case for EM

From a valuation standpoint, while BNP Paribas finds some attractive opportunities in the high yield EM corporate sector and in EM local markets, it remains cautious on the frontier space, where select countries are vulnerable from a debt sustainability standpoint.

Talwar said EM sovereign markets as a whole are more fairly valued in the company’s view with opportunities both on the long and short side.

He added that while trade frictions between the US and China remain an open issue, a lot of bad news is now already priced into markets and hence any positive developments here are likely to lead to some performance rebound.

‘Several EMs have followed and even outpaced the Fed and undertaken rate hikes of their own despite relatively benign inflationary pressures, which should be supportive for their currencies.

‘China and India [for instance] present tremendous investment opportunities given their size and the amount of companies issuing from these regions.

‘The recent dislocation, particularly in the Chinese credit markets, we believe presents an investment opportunity,' he concluded.

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