Goldman says ‘Fragile Five’ a misnomer as catchphrases can burn
Bloomberg|
Updated: Nov 23, 2017, 09.46 AM IST
New York: Wall Street got it wrong on BRICs and PIGS. Now, some of the world’s largest money managers say the newly minted members of the “Fragile Five” are actually fairly sturdy. Goldman Sachs Asset Management, T. Rowe Price Group and BlackRock Inc. are among investors buying bonds from the developing nations that earlier this month earned the dubious distinction from S&P Global Ratings. The ratings company cited perceived vulnerabilities in the event of higher interest rates and tighter monetary policy globally.
The new grouping, actually a revamp of a list created four years ago by Morgan Stanley, is composed of Turkey, Argentina, Pakistan, Egypt and Qatar. Although the nations face a variety of political risks — from tensions in the Persian Gulf to Ankara’s deteriorating relations with Europe — current-account and fiscal deficits, excluding Pakistan, haven’t deteriorated to the same level as past members. That’s created select buying opportunities.
“Sometimes you need to run towards the fire,” said Samy Muaddi, a Baltimore-based money manager at T. Rowe Price Group, who’s overweight Egyptian and Argentine debt. “These narratives often come at the wrong time and exacerbate fears that are unfounded.”
It wouldn’t be the first time a catchy label landed at the wrong moment, according to Muaddi. When former Goldman Sachs economist Jim O’Neill first introduced the moniker BRICs in 2001 for the countries he said would lead global growth over the coming decades — Brazil, Russia, India and China — it was actually a time to sell emerging-market equities. The PIGS — used derogatorily to refer to Portugal, Italy, Greece and Spain in one variation — gained traction in 2010 when going long the euro zone would have been a good bet. And when the original Fragile Five was coined by Morgan Stanley in 2013, it turned out to be a good time to buy developingnation assets.
In coming up with the new Fragile Five list, S&P analyst Moritz Kraemer surveyed the 20 largest sovereigns by commercial debt outstanding to see who would be in the most peril should interest rates rise. Venezuela was excluded from the top five because of its own crisis unrelated to global factors, according to the ratings firm.
But the situation isn’t all that dire for most of the countries, according to Angus Bell, who helps oversee about $45 billion for Goldman Sachs Asset Management’s emerging-market debt team and is overweight Argentine and Turkish hard currency debt as well as Egyptian local notes.
The new grouping, actually a revamp of a list created four years ago by Morgan Stanley, is composed of Turkey, Argentina, Pakistan, Egypt and Qatar. Although the nations face a variety of political risks — from tensions in the Persian Gulf to Ankara’s deteriorating relations with Europe — current-account and fiscal deficits, excluding Pakistan, haven’t deteriorated to the same level as past members. That’s created select buying opportunities.
“Sometimes you need to run towards the fire,” said Samy Muaddi, a Baltimore-based money manager at T. Rowe Price Group, who’s overweight Egyptian and Argentine debt. “These narratives often come at the wrong time and exacerbate fears that are unfounded.”
It wouldn’t be the first time a catchy label landed at the wrong moment, according to Muaddi. When former Goldman Sachs economist Jim O’Neill first introduced the moniker BRICs in 2001 for the countries he said would lead global growth over the coming decades — Brazil, Russia, India and China — it was actually a time to sell emerging-market equities. The PIGS — used derogatorily to refer to Portugal, Italy, Greece and Spain in one variation — gained traction in 2010 when going long the euro zone would have been a good bet. And when the original Fragile Five was coined by Morgan Stanley in 2013, it turned out to be a good time to buy developingnation assets.
In coming up with the new Fragile Five list, S&P analyst Moritz Kraemer surveyed the 20 largest sovereigns by commercial debt outstanding to see who would be in the most peril should interest rates rise. Venezuela was excluded from the top five because of its own crisis unrelated to global factors, according to the ratings firm.
But the situation isn’t all that dire for most of the countries, according to Angus Bell, who helps oversee about $45 billion for Goldman Sachs Asset Management’s emerging-market debt team and is overweight Argentine and Turkish hard currency debt as well as Egyptian local notes.
