The Ledger
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Haugaard: Markets Overprice Improving Sovereigns by One to Two Rating Notches
“At the end of a positive rating story, we almost always found that the market is pricing one to two notches too much of a good story. So when credit risk is actually not going down anymore, there's a tendency for investors to stick with a good story for a litt…”
Haugaard: Autocratic Regimes Score Lower on Governance and Carry Higher Risk
“It is very clear that in most cases where you have less democratic countries, you will also find that across the board, governance measures, institutions, regulatory quality, rule of law, in most cases, they are a lot lower. Which means that sovereign risk is …”
Haugaard: Janus Henderson Ignores Treasury Yields to Focus Solely on Spreads
“We are not focused on that. We focus entirely on the EM side of the asset class. So we focus entirely on the risk premium, the spread that you get on top of US treasury yields. And we focus entirely on figuring out where that is going at the country level.”
Haugaard: Middle-Income Emerging Markets Have Adopted Developed Market Policy Frameworks
“There are plenty of those where you've seen a significant transition to policy setups that are very similar to developed markets, and that is not something that reaches a lot of headlines, but it is something that has been happening in the past 20 years, I wou…”
Haugaard: EM Debt Markets Price Sovereign Ratings 1.5 to 2 Years Ahead
“The dynamics of that relationship is market is forward looking one and a half, two years. And this is a stylized fact. There are plenty of deviations from that depending on specific economic development phases. But in general, the market is forward looking by …”
Haugaard: Regulatory Quality Is the Second Best Predictor of Sovereign Ratings
“And the second most important variable to understand where ratings are going is regulatory quality. That captures the perceptions of the ability of the government to formulate and implement Policies and regulations.”
Haugaard: Lack of Democratic Feedback Mechanisms Gradually Builds Sovereign Credit Risk
“You do see that time corrupts, and a lot of the feedback mechanisms that you have in democracies, they disappear. They don't exist in the long term, and I think that's the biggest challenge. It's not you want to Two-year sovereign credit risk assessment that w…”
Haugaard: Janus Henderson Identified Costa Rica Mispricing Ahead of Major Rally
“For several years, we had a very strong rating compared to where the rating actually was, and we could see that the market was not pricing that rating, and part of the reason for that was because they had some short-term challenges in terms of approving issuan…”
Haugaard: Janus Henderson Avoids Concentrated High-Conviction Bets in EM Debt
“Our strategy is characterized by many positions and not high conviction. We've seen plenty of accidents in EM the last 10 years, so putting all your eggs in a couple of baskets has never been our approach. We tend to have relatively measured bets. As an additi…”
Haugaard: I Have Never Personally Traded a Bond Despite Managing EM Debt
“I haven't even traded a bond in my life, which most people would probably say is unusual when you've invested in EMH currency for 10 years, but I have very good guys who know that much better than me.”
Haugaard: Janus Henderson Holds Zero Direct Investments in Chinese Sovereign Debt
“When you then look at valuation in China on the sovereign US dollar bonds, we've realized that it's not attractive for us. So we don't have investments in China.”
Haugaard: Hard Currency Is the Most Analyzable Emerging Market Asset Class
“Hard currency for me is one of the more analyzable asset classes of EM at the country level.”
Haugaard: Hard Currency EM Debt Is a $1.3 Trillion Asset Class
“Hot currency as an asset class constitutes around 1.3 trillion USD. It's very comparable in size to the US high yield market.”
Haugaard: Over 80 Countries Now Issue Hard Currency Emerging Market Debt
“You find more than 80 countries issuing hot currency. And that number of countries has more than doubled in the last 20 years.”
Haugaard: Top 10 Countries Make Up 42% of EMBI vs. 86% of GBI-EM
“I think if you take the top 10 countries in the MB, the hard currency index, they constitute around 42% of the total index. If you take top 10 names in the local currency index, it's around 86% of the index.”
Haugaard: China Constitutes Only 4.5% of the Hard Currency EMBI Benchmark
“In the hard currency investment universe, and in the MB, there's probably around 4.5%. So China is a much smaller part than it is in most asset classes”
Haugaard: Janus Henderson Model Explains 85% of Sovereign Rating Variation
“So we built a statistical model that identifies what explains ratings. It identifies around 85% of the entire variation.”
Haugaard: EM Credit Spread Standard Deviation Is Near Historical Highs
“If you look at just a simple measure of standard deviation of spreads in EM, it is almost at historical highs.”
Haugaard: Capital Flows Into Emerging Markets Revolve Around Self-Fulfilling Expectations
“Financial markets are very powerful. Expectations can be self-fulfilling, and if you make the good policy choices, you can have a slow and steady catching up, and if you don't, it will be a bumpy ride, and you can have capital flows coming in and out in a very…”