Time to short debt in emerging markets, Eaton manager says

Soft-touch IMF is fostering credit bubbles in sector, Cirami contends

Oct 24, 2010 @ 12:01 am

By Jessica Toonkel

Although much has been said about a possible bond bubble in the United States, there also may be one brewing in certain parts of the emerging-markets sector, 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,” he said last week at an Eaton Vance Management market outlook meeting 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.

For example, the IMF has thrown lifelines to countries such as Hungary, Poland and Ukraine with few conditions, Mr. Cirami said.

And though that may cause problems for these countries, it presents an opportunity for global fixed-income managers to short credit and government debit in these countries, he 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, Mr. Cirami said.

Richard Bernstein, chief executive of Richard Bernstein Advisors LLC, also spoke at the gathering. He said that small-cap-value stocks present a good investing opportunity as the markets continue to recover,

Because banks are wary of lending money to small businesses, these companies are looking for other venues, Mr. Bernstein said.

Eaton Vance launched the Eaton Vance Richard Bernstein Multi-Market Equity Strategy Fund (ERBAX) this month.

E-mail Jessica Toonkel at jtoonkel@investmentnews.com.

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