Bank of America Merrill Lynch Recommends Emerging Bonds

According to Bank of America Merrill Lynch, investors should put money into emerging market bonds and equities. They say that as the so called BRIC nations: Brazil, Russia, India and China have posted the best growth improvement in 2013; investors should be leaning towards those. According to the bank’s Emerging Europe, Middle East and Africa Department’s Head of Income Strategy, David Hauner, the emerging markets are back into track, specially the BRIC countries. In last year, many investors felt that the BRICs are finished because of the frustrating growth. However, things definitely are back on track in 2013.

Overall, emerging markets, according to analysts, will be recording an economic growth of 5.2% in 2013, in comparison with 4.9% of 2012. According to Hauner, the best fixed income opportunities come in Asia in 2013, primarily because of the great growth that this region is showing and its links to the USD.

Hauner added further that people are selling some of the treasuries while getting out of the bonds and buying more from the emerging markets. This makes complete sense, as far as Hauner is concerned. Hauner advised investors further to overweigh equities and emerging market bonds. Well, when it comes to the biggest jump of improvement in the global growth forecasts, the BRIC economies make the highest possible contribution.

From 2001 to 2010, the BRIC countries showed a growth of 6.6% annually, almost double than the global economic growth, as far as the statistics of International Monetary Fund is concerned. In terms of Dollar, China is the 2nd biggest economy in the world, whereas, Brazil, Russia and India holds the positions 7, 9 and 10 respectively. This is according to the IMF’s estimates for 2012 which was released in last October.

The MSCI BRIC stock Index has increased by 2.2% in 2013, whereas, the broader MSCI Emerging Markets Index has jumped up by 1.7% only. The benchmark gauge of Brazil, the Bovespa Index however has declined by 6% in 2013; whereas, the Micex Index of Russia posted gains of 2.8%. The speculative grade securities’ yields of Brazil have jumped up by 0.37% after it went down to a 2-year low of 6.44% on 22nd January. Emerging market bond yields went down by 2% from 9.3% despite the net debt rising to a record 3.02 times earnings without considering taxes, interest and amortization.