Russian invasion provides instructive EM debt case study

Spotting red flags in the emerging market debt market is essential, but so is not ignoring them.

This was the theme of a recent webinar by Lisa Chua, portfolio manager on the emerging markets debt team at Man GLG that looked at the run up to Russia’s invasion of Ukraine.

She said that many peers were taking a “buy the dip approach” before the conflict began, rather than weighing the downside risk, which, she said, was much larger than the potential upside.

“When you consider that market participants were still running overweights in Russia and were increasing positions in Ukraine, it becomes very clear that the market was largely ignoring the risk of the escalation of a conflict,” said Chua.

Chua began by saying that a disciplined investment process is key to generating strong risk-adjusted returns across strategies and market cycles.

“If I were to put our process into three words,” she said, “it would be fundamentals, valuations, and positioning.

“Investing in emerging markets will continue to require a disciplined integrated process that incorporates both historical and forward-looking ESG elements, alongside fundamentals, valuations, and market positioning.”