Shorting against the trend is extremely costly! Asset management giant Carmignac warns: The emerging market bond market is entering a structural bull market.

Headquartered in Paris, the asset management giant Carmignac Gestion SA recently issued a warning: traders should think twice before selling emerging market bonds, as funds are preparing to continue flowing into this asset class. The fund manager overseeing around 3.7 billion euros (approximately $4.4 billion) of emerging market fixed income assets at the company, Alessandra Alecci, analyzed that emerging economies are showing three major structural advantages: first, their economic growth rate continues to outpace developed economies; second, some country leaders demonstrate a stronger sense of policy responsibility; third, monetary policy remains cautious, and overall debt levels are relatively manageable. Market expectations for a rate cut in the United States continue to rise, driving investors to seek higher-yielding investment opportunities in other markets, making funds tracking emerging market assets one of the biggest beneficiaries. This week, despite the selloff in tech stocks and commodities impacting emerging market stocks and some currencies, emerging market bonds have almost been unaffected. It is worth mentioning that emerging market bonds denominated in major currencies delivered returns as high as 12.2% last year, marking the best performance since 2012. While it may be challenging to replicate this stellar performance this year, Alecci stated that the upward trend in emerging market bonds is not yet over. In an interview this week, Alecci stated, "Combining these funds re-entering for diversification purposes with very strong fundamentalswho would want to stop this trend?" Currently, the spread in yield demanded by investors for emerging market bonds compared to US Treasuries is only 240 basis points, reaching its lowest level since 2013. However, Alecci pointed out that many emerging markets still provide very attractive interest rate conditions for arbitrage trading. By arbitrage traders, she refers to investors who borrow low-interest currencies to buy high-interest currencies to profit from the interest rate differential. She specifically cited countries like Brazil, Colombia, and Turkey as examples. Alecci said, "Indeed, the spread has narrowed in some cases and requires caution in avoiding risks, but many countries still offer quite substantial returns." Emerging market bonds hide a "value gap" According to Alecci, the widespread rise in commodities will continue to provide strong support for the demand for emerging market bonds. She stated, "Many emerging markets are producers of metals that play a key role in the artificial intelligence and green revolutions. In my opinion, this positive trend will continue." In Carmignac's portfolio holdings, Alecci specifically mentioned Hungarian local currency bonds. She analyzed that after the April parliamentary elections, Hungary is likely to undergo a "significant reform," and given the current situation, the Hungarian central bank has room to cut interest rates. Alecci also revealed that Carmignac has invested in Romania. She pointed out that Romania has implemented "quite significant" optimization measures in the public finance sector. The fund manager further stated that frontier markets like Ivory Coast, Benin, Egypt, as well as Uzbekistan, a major gold-producing country, all have good investment value. Alecci said, "If you carefully study the fundamentals of some of these investment targets, you will find that they are actually very solid and reliable. The market's positive reception of these targets is itself very encouraging, even sparking a wave of optimism in other market sectors."