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| Marino Valensise |
Baring Asset Management is looking to buy European government bonds instead of U.S. and Japanese govvies. Marino Valensise, head of fixed income in London, points out that he receives essentially the same yield from European and U.S. government bonds. But, the European economic zone is not expected to grow as much as the U.S., making inflation less of a risk. Furthermore, he notes "the Bank of Japan cannot continue to act as buyer of last resort of U.S. Treasuries indefinitely." He says this is unsustainable and predicts that spreads on Treasuries will widen. The firm runs £5.5 billion in global sovereign debt and a total of £10 billion in fixed income. Elsewhere among government securities, Valensise plans to buy local-currency emerging market debt, especially Polish sovereigns. He says these are attractive because they performed poorly in the second half of last year and the zloty is cheap--meaning the firm does not have to hedge its position. Valensise also favors Hungarian bonds, which he deems a high-beta version of Polish bonds. He mentions that he may also add some South African government bonds, which still offer a bit of upside despite the recent rally. On the flip side, he will wait for a pullback in Turkish bills. Hard-currency denominated emerging market bonds, on the other hand, are a danger-zone, Valensise warns. He says dollar-denominated Brazilian bonds, for example, are likely to drastically underperform on the back of any tightening by the Federal Reserve.
