“Erdogan may want to boost spending, but overall he realizes the importance of that fiscal anchor to the ratings agencies,” Ross said.
Argentina
1H total return: 2.1% (64th out of 69 developing nations)
Argentina, the poster-child of Latin America’s receding populism, is another favorite of DiClementi, who oversees portfolios including a $1.2 billion emerging-market debt fund that’s bested 81 percent of peers this year. While its corporate bonds posted the third-highest returns to start the year, the nation’s sovereign hard-currency notes were a hit-and-miss.
That could change in the second half as the AllianceBernstein money manager expects mid-term elections in October to reaffirm President Mauricio Macri’s mandate for structural changes to the economy. Argentina is also favored by Bent Lystbaek, a money manager at Danske Capital in Lyngby, Denmark, who oversees the firm’s emerging-market debt fund that’s topped 83 percent of peers this year from bets including Mongolia and Turkey.
Venezuela
1H total return: 4.2% (47th out of 69 developing nations)
Venezuela’s dollar bonds returned a world-leading 52 percent last year, but labored through the first half of 2017 as reserves hit a 15-year low, forcing the government to turn to Wall Street for creative financing. Still, the notes offer more yield than any other emerging-market sovereign and avoiding the debt makes it tough to beat the benchmark.
Dehn said investors will continue to profit by scooping up bonds from the government and state oil company Petroleos de Venezuela ahead of payments and taking profit afterward.
“It’s a pretty big decision to sell when bonds are priced at 40 cents on the dollar,” said Grantham Mayo’s Ross, adding that Venezuela remains one of their top holdings. “You have to really take a position that it’s going to be a nasty restructuring to do that.”