In a recent query by Bloomberg seeking the best investment ideas in today’s global markets, experts highlighted the potential of frontier countries, including Pakistan, which are receiving sponsorship and aid due to their commitment to deficit reductions and fiscal responsibility.
Andrea DiCenso, portfolio manager and strategist at Loomis, Sayles & Co., offered a unique perspective on portfolio allocation, suggesting a departure from the traditional 60/40 mix of stocks and fixed income. Instead, she advocated for a 60% allocation to fixed income and 40% to equities, citing the attractiveness of Treasury risk premiums compared to equity risk premiums, a trend not observed in the past two decades.
DiCenso expressed particular enthusiasm for the global high-yield universe within fixed income, highlighting the attractiveness of emerging market sovereign debt excluding China. This segment, she noted, appears exceptionally appealing for the first time in quite a while.
She emphasized that many frontier countries, often associated with a history of defaults, are currently at different stages of their default cycles. Notably, there has been a shift from populist leadership to more centrist figures who prioritize fiscal responsibility, contributing to a favorable investment environment.
The endorsement of frontier markets like Pakistan underscores their evolving economic landscape and the potential for prudent fiscal policies to attract investor confidence. As global dynamics continue to evolve, such insights provide valuable guidance for investors seeking opportunities amidst shifting market trends.
FRONTIER MARKETS GARNER INVESTOR INTEREST WITH PRUDENT FISCAL POLICIES
Countries such as Argentina, Ecuador, Pakistan, Lebanon, and Egypt are experiencing a shift in investor sentiment due to their implementation of sound fiscal policies, resulting in increased capital inflows and attractive double-digit yields for investors.
Egypt, in particular, has been cited as an example of a country receiving sponsorship and aid from various nations due to its commitment to deficit reduction and fiscal responsibility. This commitment has led to the announcement of new financial support by institutions like the International Monetary Fund (IMF) and the World Bank over the next three years. Policymakers in these countries are actively meeting key IMF conditions, further bolstering investor confidence.
In terms of fixed income investments, investors may consider building duration into their portfolios, possibly through Treasury Inflation-Protected Securities (TIPS), especially if the US enters a rate-cutting cycle. While concerns about inflation persist, the Federal Reserve has the flexibility to initiate rate cuts, even if economic data suggests slight overheating.
Andrea suggests allocating 40% of the portfolio to equities, with a focus on international markets, particularly as global growth outside the US gains momentum. She advises against heavy exposure to China at this stage, indicating that it might be premature. Instead, she recommends favoring India, which remains a preferred market. However, she emphasizes the importance of diversification across regions, including Europe, frontier Africa, South Africa, and Asia excluding China.
In addition to international equities, Andrea proposes investing the remaining portion into small- and mid-cap stocks in the US, with a tilt towards growth-oriented companies. This strategy deviates from the US exceptionalism trade, indicating a preference for broader market exposure.
Andrea’s approach reflects optimism about emerging markets’ ability to perform well independently of China, underscoring the potential for growth across diverse regions. Overall, her strategy prioritizes diversification and strategic allocation to capitalize on evolving global market dynamics.
