MEFMI trains officials on Investing in Emerging Market Bonds

To support sovereign asset managers’ efforts to achieve the “classical trilogy of objectives” for sovereign asset management, namely security, liquidity and return, MEFMI conducted a virtual workshop on Investing in Emerging Market Bonds from 29 – 31 May 2023.

The objective of the workshop was to create awareness on the opportunities and challenges of investing in emerging markets for managers of sovereign reserves seeking to diversify their portfolios. It also aimed to enhance the participants’ understanding of both the investment climate in emerging markets, the unique operational set up procedures and other considerations such as asset allocation, internal portfolio set up, regulatory requirements, benchmarks, counterparties, know your client (KYC) and custody arrangements.

The workshop was informed by the developments in the global financial market landscape which has evolved significantly over the last one and half decade, creating new challenges and opportunities for sovereign asset managers. Yields of safe haven assets were driven to historically low levels. This followed successive rounds of quantitative easing from the world’s major central banks to reflate their economies from the negative effects of challenges such as the covid 19 pandemic. The coordinated quantitative easing programmes also increased correlations among sovereign bond markets amidst heightened market volatility, making it more difficult for bond investors to diversify their bond portfolio risks.

Amidst this background, the focus on portfolio diversification has taken more prominence. Emerging Market Bonds such as the China onshore market are drawing attention from international investors as many consider allocating a portion of funds to such markets. Many sovereign asset managers in the region might have considered the possibility of adding emerging market instruments to their asset portfolios. However, not only do they lack experience in investing in emerging markets but are also unfamiliar with the rapidly changing dynamics in those markets.

The workshop comprised presentations by the resource persons as well as sharing of experiences regarding investing in China. The participants included officials responsible for asset allocation, staff who oversee external fund management, portfolio managers, risk analysts, internal auditors and staff in reserves management from central banks, sovereign wealth funds and other managers of sovereign wealth funds. Out of the 42 officials who participated, 17 were female. The officials were drawn from six (6) MEFMI member countries namely: Angola, Botswana, Kenya, Rwanda, Tanzania and Uganda.

By Barbara Jjaggwe