ING's emerging markets hard currency debt team has increased its exposure to troubled former Soviet state Ukraine following the stand-off in Eastern Europe.
The team have taken advantage of the sell-off in Ukraine sparked by Russia's recent aggression to increase exposure. Holdings include a government-guaranteed infrastructure bond, as well as a mixture of sovereign and corporate debt.
ING emerging market debt hard currency head Marco Ruijer said: “Our underweight bias helped us during this year, but now we are neutral.
“The Russia-Ukraine crisis is de-escalating somewhat, but there is still a lot of work to do, with the big worry now that the government does not have control over the Eastern part of the country."
The team has also moved to an overweight in Kazakhstan, where prices were also hit by the Russia-Ukraine crisis.
Other overweights include Venezuela and Argentina. While Venezuela’s debt to GDP ratio is deteriorating, the team liked the introduction of a second exchange rate in 2013.
Ruijer said: “We increased our overweight in Venezuela, although it is in short-dated bonds because we still think there will be problems coming down the road.”
In Argentina, the team has bought provincial bonds. These assets are unaffected by the on-going court case regarding the government’s obligations to bondholders.
More than 21% of the emerging market hard currency portfolio is in frontier markets, which represents a 5% overweight compared to the index.
Ruijer said: “Iraq has very low debt and they have a lot of oil. It is not a problem for them to pay a little commercial debt outstanding.
“If you look at economic fundamentals it is really trading cheap. Of course, it is for a reason, but we think the country will stay in one piece and the political risk is a bit overpriced.”
The team is also positive on Rwanda, because of its high rankings in development indices.