“New Bond King” Jeffrey Gundlach’s investment management company, DoubleLine Capital, has steered clear of the higher-risk Chinese bond market and instead increased investments in bonds from Guatemala and Paraguay.
DoubleLine Capital’s portfolio managers Su Fei Koo and Mark Christensen jointly oversee a $4.59 billion emerging market bond fund.
They believe that bonds from Guatemala and Paraguay may see credit rating upgrades in the coming months, moving out of the “junk bond” category.
They also mentioned that the upcoming U.S. election could cause volatility, impacting the market’s interest in high-risk assets. Therefore, they are cautious about low-rated country bonds.
Su Fei Koo told Bloomberg, “We are starting to eliminate some low-quality bonds and instead invest in higher-quality bonds.”
Bloomberg noted that the fund has achieved a return rate of 7.4% so far this year, outperforming 89% of similar funds.
Currently, Guatemala’s bonds are rated Ba1 by Moody’s, the highest in the speculative grade category. Standard & Poor’s and Fitch Ratings rate them as BB, the second-highest speculative grade.
Su Fei Koo expressed her preference for Guatemala’s bonds due to the country’s high market liquidity and strong debt indicators.
On the other hand, Moody’s upgraded Paraguay’s rating to investment grade Baa3 last month. Moody’s believes Paraguay’s long-term monetary and fiscal policies are sound, stimulating economic growth, diversification, and resilience. Standard & Poor’s and Fitch Ratings rate Paraguay as BB+, the highest speculative grade, with a stable outlook.
Su Fei Koo expects that within the next 12 months, another rating agency may upgrade Paraguay’s bonds. She also mentioned that rating agencies may further upgrade Panama’s rating in the next year.
The fund successfully avoided a major collapse in developing countries in recent years. After Crimea was annexed, the fund began selling Russian bonds and avoided bonds from countries in the region when the war broke out.
China’s recent economic weakness has impacted the stock and housing markets. With limited investment options, insurance companies and institutional investors have flocked to the Chinese bond market, causing significant market fluctuations.
However, Christensen told Bloomberg that due to signs of government intervention, especially in the technology sector, the fund completely sold off Chinese bonds in early 2022.
He stated that there is no need to invest in Chinese bonds as there are alternative choices elsewhere to avoid the impact of government policies and geopolitical situations.
“We can find valuable investment options elsewhere without worrying about waking up to certain news headlines the next morning,” Christensen said.
(This article has drawn upon relevant reports from Bloomberg.)