T Rowe Price's emerging market debt team has cut back on its Iraq government debt position, in anticipation of renewed political turmoil in the country.
The US-based fund manager has been overweight in the troubled country for several years, and at one time was the largest Iraqi debt holder. However, the team is now gradually reducing their funds’ exposure to the oil-rich state.
T Rowe Price emerging market debt specialist Jeff Kalinowski said: “We do see further turmoil. Speaking long-term we still have an overweight but we have been paring it back as valuations have come down.
“We have seen rising violence. [Iraqi prime minister] Maliki is a very weak leader in Iraq. He has been shunning the [minority] Sunni party and there is likely further violence to come.”
The fund had benefited from several years of good performance in Iraq, he added.
Turning to more conventional emerging markets, Kalinowski highlighted the risk the ‘Fragile Five’ of Indonesia, South Africa, Brazil, Turkey and India could see credit ratings cut.
He said: “We think Brazil will probably get a downgrade, but to –BBB, so just inside investment grade.”
India could also receive a downgrade if reforms failed to materialise, he warned.
In the three years to 10 March 2014, the T Rowe Price Global Emerging Markets Bond fund returned 16.8%, compared to a sector average of 8.2%, according to FE.
