Guest: Tina Vandersteel is the head of GMO’s Emerging Country Debt team. Prior to joining GMO in 2004, she worked at J.P. Morgan in fixed income research developing quantitative arbitrage strategies for emerging debt and high yield bonds.
Recorded: 1/31/2024 | Run-Time: 52:23
Summary: In today’s episode, we delve into Tina’s team’s recent piece discussing a potential “once-in-a-generation opportunity” in emerging market local currency debt. Tina provides an insightful overview of the emerging market debt asset class before exploring the rationale behind her team’s assessment. She discusses the parallels between the current market conditions and those of 2004 and shares her perspectives on liquidity panics and sanctions risks. Additionally, she offers her insights on China, highlighting unique opportunities and risks. With the rarity of a reputable institution like GMO labeling an opportunity as “once-in-a-generation,” this episode promises to be both informative and engaging.
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Links from the Episode:
(1:27) – Welcome Tina to the show
(2:08) – Overview of emerging market local debt
(4:27) – Exploring Brady Bonds
(7:53) – Discussing sovereign debt issues
(11:29) – No Stone Unturned
(12:58) – Evaluating the overvalued US dollar
(25:00) – China’s role in emerging debt markets
(29:33) – Identifying countries at risk of default
(37:35) – Highlighting opportunities arising from geopolitical events
(42:12) – Tina’s most memorable investment
(47:00) – Sharing Tina’s most controversial viewpoint
Learn more about Tina: GMO
Transcript: Meb: Welcome, welcome everybody. We have an exciting episode today featuring Tina Vandersteel from GMO, where she leads the Emerging Country Debt team. Tina has been a part of GMO for almost two decades now. In this episode, we explore Tina’s team’s recent analysis of a potential “once-in-a-generation opportunity” in emerging market local currency debt. Tina provides a comprehensive overview of the emerging market debt asset class and delves into the reasons driving her team’s assessment. She draws parallels between the current market environment and that of 2004, shedding light on critical factors like liquidity panics and sanctions risks. Tina also shares her unique perspective on China, offering valuable insights on both opportunities and challenges. The rarity of a reputable institution like GMO identifying an opportunity as “once-in-a-generation” makes this episode a must-listen for investors. Join us as we uncover valuable insights with Tina Vandersteel.
Meb: Tina, welcome to the show.
Tina: Thank you, Meb.
Meb: We’re in for an enlightening discussion today covering a range of topics across the global landscape. Let’s kick things off with a quote from your recent piece on emerging market local debt, where you mentioned, “Arguably, this is the best set of conditions we have seen in 20 years.” This statement carries significant weight, considering the implications it holds for investors. Before we dive deeper into that quote, let’s start by understanding the concept of emerging market local debt. This asset class may seem unfamiliar to many, so could you provide us with a brief overview?
Tina: Certainly. Emerging market debt involves countries borrowing funds in their local currency, as opposed to foreign currencies like the dollar or euro. This distinction brings unique characteristics to the table, especially in terms of currency fluctuations and potential appreciation relative to investors’ home currencies.
Meb: Given the limited exposure of most investors to this asset class, it’s crucial to grasp the size and scope of the universe it encompasses. Foreign bonds represent a substantial asset class globally, with various types of debt instruments and benchmarks available. Could you shed some light on sovereign debt and the significance of benchmark indices in this space?
Tina: Benchmark indices play a vital role in the emerging market debt landscape, offering investors a standardized reference point for performance evaluation. One of the most renowned benchmarks in this domain is the MB Global Diversified Index, which has evolved over time to include a diverse range of countries and securities. Notably, the inception of Brady Bonds marked a significant development in the emerging market debt market, introducing innovative features to enhance bond safety and attractiveness.
Meb: It’s fascinating to uncover the historical context behind Brady Bonds and their impact on the emerging market debt ecosystem. These instruments, named after Nicholas Brady, revolutionized the debt market by introducing enhanced safety features such as principle and interest collateralization. The intricate nature of Brady Bonds posed challenges for investors, making them a compelling subject for analysis and modeling.
Tina: Absolutely. The complexity of Brady Bonds necessitated a deep understanding of their structures and implications for investors. By offering unique features like principle collateralization and rolling interest guarantees, these bonds aimed to mitigate default risks and provide greater security to investors. The meticulous modeling and evaluation of Brady Bonds opened up new avenues for investment analysis and decision-making in the emerging market debt space.
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