Time to short emerging-markets debt?

While much has been said about a possible bond bubble in the U.S., there may also be one brewing in certain sectors of the emerging-markets space, according to Michael Cirami, vice president and a global fixed-income portfolio manager at Eaton Vance Management.
“We think the fact that Mexico issued a 100-year bond is crazy,” Mr. Cirami said today at an Eaton Vance Management market outlook luncheon in New York.
The International Monetary Fund’s stance on extending credit freely to emerging-markets governments is going to create “imbalance” and “greater dislocations,” in these economies, he said.
“This is a new IMF that lends more freely and asks for less in return,” Mr. Cirami said. “We view these kicking-the-can-down-the-road policies as problematic because they don’t address the issues.”
For example, the IMF has thrown lifelines to countries such as Poland, Hungary and Ukraine with few conditions, Mr. Cirami said.
And while this may cause problems for these countries, it does present an opportunity for global fixed-income managers to short credit and government debit in these countries, Mr. Cirami said.
Eaton Vance recommends taking long positions in emerging-markets local debt and taking short positions on credit spreads both in the emerging markets and the developed world, he said.
Richard Bernstein, chief executive officer of Richard Bernstein Advisors LLC, also spoke at the gathering. Mr. Bernstein said small-cap value stocks present a good investing opportunity as the markets continue to recover,
Since banks are wary of lending money to small businesses, these companies are looking for other venues, said Mr. Bernstein, “We want to be the mafia of small cap value,” Mr. Bernstein said.
Eaton Vance launched the Eaton Vance Richard Bernstein Multi-Market Equity Strategy Fund Ticker:(ERBAX) last week.