Market review – snapshot
Source: Bloomberg, JP Morgan. Local: GBI-EM Global Diversified ; Dollar debt: EMBI Global Diversified; Corporate: CEMBI Broad Diversified.
1 Bloomberg, JP Morgan as at 31 July 2020. BBG Barclays US Treasuries –yield to worst, 2 Bloomberg Barclays EUR Treasuries –yield to worst. All other figures from JPMorgan Indices.
For further information on indices, please see the Important information section.
Antoon de Klerk:
Right, so very quickly then, these are certainly the type of numbers we like to see. If you look at the market review snapshot above, [it shows] strong performance across the board from Emerging Market Debt, each asset class [returning] high single digits and then with dollar debt and specifically the high yield component of dollar debt [double digits].
We know the way this crisis has evolved. In March, what really got hit very quickly were the more liquid investment-grade names, because those were the assets you were able to sell. Then the high-yields got hit, etc., and then what came back very quickly – already in April when central banks stepped into the breach very quickly – were the investment-grade assets. This is fairly typical of a crisis, where you first see the higher-quality assets rally and then you see the high-yield assets rally, which is what we have seen over the period under investigation. And, fairly typically, the last asset to rally is EM FX and we are possibly seeing that at the moment, with a bit of the dollar weakness, and we’ll dig into why we think that is actually fairly sustainable as a more secular trend.
On the local currency side (of course, my passion and bread and butter), it was really the Eastern European markets that were very strong performers. [These markets] not only benefited from the more risk-on and EM rally, but also benefited from the euro rally. You saw 12 or 13% unhedged returns in dollar terms from the likes of Poland, Hungary, etc. So those are really the outperformers.
Other than those, some favourites of ours – the Peruvian bond market – had a bounce-back after underperformance due to pension fund legislation. This is a theme that is playing out in a couple of our markets – not many, mostly in Latin America – where consumers are given access to some of their pension savings and that is actually giving us attractive entry opportunities into – markets, and stories we like.
What that has meant for returns on a cyclical shorter-term valuation basis on the right hand side (we will come to the structural side a bit later on), light beige dots show where the spreads were as of the beginning of the year, spreads, yields and valuations. [These are] showing that, other than in investment grade, which has pretty much retraced 95-100% of its value, and certainly in local currency, it is true that most of the high quality investment-grade local currency yields are at or below where the yields were before the crisis.
The two pockets of deep value on a more cyclical basis, we think are on the high-yield hard currency side of things and that is expressed in our currency mandates and in blended mandates and, to some degree we have got a small allocation to that even in the local portfolios. But then currency is a very exciting prospect at the moment and why this isn’t just based on a shorter-term window is where I am going to hand over to Werner, who is going to talk us through more of the secular outlook.
Fundamentally flawed or misunderstood?
Taking stock of the asset class in the COVID era
Although growth in EM has slowed, it still outpaces DM
Werner Gey van Pittius:
Thanks, Antoon, and thank you very much everyone for making the call today.
Between us and the team and especially myself and Antoon, we have spent a lot of time thinking about EM fundamentals. I think a lot of what has happened in COVID has created a certain type of hysteria around EM and its fundamentals and you see front page stories highlighting the debt problem in EM. We thought it might be valuable to go and dig into that and really pull it apart and [look at] the phases of EM that we have seen.
So on that first slide we posted there, we [show] growth through the crises of the 90’s, which is pretty much the Tequila Crisis in the early 90’s (‘93/’94) in Mexico, then Asia, Russia in ‘97/’98 – so it was really a period of crisis, and then you had the big commodity boom market of the early 2000’s, so that is the second period we looked at.
Consistent EM growth premium since the turn of the century
EM growth has slowed over the last decade…
Source: Ninety One, Haver, Bloomberg, June 2020
…but the growth premium to developed markets remains intact
The third period we will characterise as the one of DM collapse and the correction of the commodity bubble that we had in the developed world, where EMs really stand out for [their] fundamentals. And then, once that leverage cycle slowdown from DM spilled over into EM, it also highlighted some vulnerabilities in EM in the 2013-2020 period, as we will see – the latest period.
Now with all of that being the background and we know it was a tough period in the last 5-7 years for EM and especially some of the local markets, it is still quite telling if you look at that chart on the left. EM-ex-China growth and Chinese growth, were still an order of a magnitude above developed markets and, and if you do a time series of that from the 80’s, you can see the chart on the right – it’s really been the case that there is a growth premium in EM that disappeared a bit between 2015 and ’19 as commodity prices – oil – went from $120 down to $25. You can imagine that that had a certain wrenching effect on EMs where they were commodity-based currencies.
Still, even in the crisis now, you can see that the growth forecast from the IMF relative to DM is accelerating again and back to that 3-4% differential over the developed world, which is obviously a good sign for us. So, in terms of growth, there is a premium. The premium is back now even in the crisis. You know EM is certainly better off than DM, as you can see from that.
Inflation is typically stable, thanks to credible monetary policy
If we move over and start talking about inflation, I mean inflation has been the success story I think in global policy since New Zealand started inflation targeting and it spilled over to other DMs and then over to EM. And certainly you can see how EM has graduated from the 90’s, where you had hyper-inflation in several South American markets, some of them still bearing the scars today actually in having to sell inflation-linked bonds or having very big inflation-linked bonds because of that hyper-inflation, but that is also a great opportunity for us because they have broken inflation and those bond markets have done very well for us. Some of those countries trade incredibly conservatively and create big opportunities for us, which Antoon will mention towards the end of the call. But inflation-targeting and central banks becoming independent has been a success, not just in DM but also rapidly followed by EM.
Adoption of independent central banks and inflation targeting has led to a sustained period of lower and more stable inflation
Credible monetary policy has suppressed inflation…
Source: Ninety One, Haver, Bloomberg, June 2020
…allowing policy rates to fall while maintaining a premium to DM
Debt levels are manageable and should remain much lower than in DM
If we move on from inflation to a topic that is close to our hearts and certainly for everyone in the financial press, it’s the debt-to-GDP dynamics under COVID. Thinking about what happened to debt certainly in the developed world, and talking about debt forgiveness in EM, and that everybody should stop paying debt right now and the private sector is evil to demand interest payments and debt servicing, that whole debate for us seemed very flawed and that is one of the big reasons we built this data set.
Despite large COVID-induced fiscal deficits, EM debt levels will stabilise at much lower levels than developed peers
EM debt/GDP levels will remain relatively low…
Source: Ninety One EM projections, DM IMF projections. June 2020
…while corporate and household debt (ex-China) is also modest
Source: BIS, 2019
If you look at emerging markets, if you look at their debt to GDP expected in 2020, EM is a touch above 50%. Now, Germany we know are very frugal, they manage their finances very well but, moving over to the States and Japan and also on the right-hand side you can see the Eurozone as a whole, where overall debt levels sit, EM doesn’t really have a debt problem here. When Antoon and I looked back through time, you see that the crisis of EM in the late 90’s – EM debt went from about 47% to about 57%, about 10 percentage points. Maybe it was 45 to 55, but in this case it is 47 to 57, so 10 percentage points. So EM debt to GDP has done exactly what we would have expected it to do in this crisis: it is going up 10 percentage points and that is certainly something we take note of, but this is by no means a crisis for EM in terms of debt. Wholesale debt forgiveness and EM stopping to service its debts and [the] private sector should be pushing for this is a very flawed argument because all of those countries will automatically go into selective default and then the private sector shuts to them. So it would be enormously disruptive and extremely counterproductive if you had to go down that avenue. So certainly debt to GDP for us isn’t a concern.
Regionalisation vs. globalisation: resilience to Trump’s trade policies
Moving on to the balance of payments then and bringing into it some of the themes of globalisation and trade openness and what this mean for EM trade, now this is an area where we all know that the world is extremely uncertain. So let’s not assume for one minute that any of us have a crystal ball but we have certainly seen an acceleration of themes that have been prevalent in the market even before this crisis, [they] have been accelerated into this crisis.
The case for trade openness remains intact – even if global liberalisation efforts stall, expect emerging markets to benefit from greater regionalisation with upside potential from a Biden presidency
EM current account balances are close to flat…
Source: Ninety One, Haver, Bloomberg, June 2020
…while EM reserve adequacy remains robust on the whole
So you know I think it is a far step to say that globalisation is being reversed by Trump if nowadays all of us are working from home and you can get somebody in Serbia doing a quant model for you and doing it online very effectively. That is the nature of the world at the moment, is that services globalisation is happening fairly rapidly and balance of payments effects from this whole Trump showdown with China, it is certainly not a foregone conclusion that it is going to be negative for EM. In fact, we would actually argue that the current connectivity, the way that technology – the success of the technology companies and that sector of economies – has certainly meant that EM is globalising even further at the moment. So we think there will be further regionalisation, so Malaysia, Taiwan getting more and more integrated into the supply chains of the region where they are avoiding sanctions. Just on a side note on that, if you think of what the US is asking for – you know hey, you people in Asia, please buy more of our soya beans and we want to avoid your tech exports to us – they have already lost the fight. So we think that more and more the US is side-lining itself out of a 1 billion person consumer market in China and that is certainly not boding well for the future of US companies that need to grow and need that consumer base certainly to grow.
So just back to that slide on the current accounts, so overall current accounts are in decent shape but, more importantly for us, if you look at the IMF, they created a reserve adequacy measure – are these countries safe enough; do they have enough import cover; do they have low short-term debt relative to foreign exchange reserves – and then they convert that into a measure and you can see that, on average, EM has got 140% of what the IMF would deem adequate for their balance of payments to be in a safe position.
So that is a little bit of a whirlwind overview on the structural dynamics that we see in EM and we think it is in fairly decent shape. That being the case, we must never forget that EM is not a country; EM is a fairly large place with massive divergence across countries.
Highly diverse: active bottom-up investing will be key
Overall solid fundamentals mask significant differentiation across EMs
So if we look a little bit between these different countries, let’s start with the fiscal deficit and you can see that, on fiscal deficits, there is massive divergence between countries, from Taiwan, Russia, Qatar, South Korea on the left all the way to Saudi Arabia, Brazil, India on the right. Some countries are spending more; some have got a bigger revenue shock. You know not everybody on the right-hand side of this – you know the fiscal impulse from South Africa is negligible whereas in Israel it is massive. So in some it is an expenditure effect and in some it is a revenue effect but, [in] fiscal deficits, there is large dispersion across the board and that means, if you look below that, you see the debt to GDP levels, which are all the way from Brazil and Egypt, you know that 80 to 110% in Brazil, India, South Africa in difficult territory, all the way over to Russia and Kazakhstan which are below 20%.
Fiscal impact of COVID-19 is leading to sizeable deficits, but debt levels remain a concern in only a few select countries
Large fiscal deficits in some markets…
…exacerbating divergence in debt/GDP levels
Source: Ninety One analyst forecasts, as at July 2020.
So still bear in mind that these debt levels on the whole, except for Brazil and Egypt, all of these countries are pretty much below most developed markets and all of the big ones certainly, as we have shown in the combined regional debt levels we shared before. So certainly there are some countries like Brazil, who worry us, where we keep a very close eye on and where we have certainly got very light exposure, whereas there are other countries which we back to come through this and we think they are doing everything right, like Egypt.
You know so avoiding Egypt for the fact that it has got 80% of debt to GDP, I think you have not done your homework as a bottom-up investor because they are on an IMF programme. They have done everything right. They absorbed huge outflows on the capital account during COVID and the currency weakened a little bit as it was used as an escape valve, people sold a lot of Treasury bills and now the money has started flowing back and it has been extremely stable. I think it has survived the crisis with aplomb and we really like the way that they have dealt with it.
So that is on debt. If we then just look over some of the other metrics that we looked at before, so if we look at the current accounts and we look at the effect there, some current accounts are doing very well because oil prices are fairly muted compared to last year, still at about $40 or so on average I would say, to some countries having huge demand/import compressions which helps on the balance of payment. On the whole though, [in] EM still there are a lot of commodity exporters. So if you look towards the right-hand side, Colombia, Saudi Arabia, I mean Kenya is more agricultural goods, there are quite a few countries in that commodity export sector where balance of payments is certainly a little bit worse off. Nevertheless, as we saw on the overall balance of payments and reserve adequacy, this is not something that creates a big concern for us.
COVID-19 is softening demand, leading to and current account correction and moderating inflation in many markets
Import compression and oil prices leading to varied current account dynamics…
…while inflation is only a concern in a few markets
Source: Ninety One analyst forecasts, as at July 2020.
Then, lastly, on the inflation, yes, there are the problem children in Nigeria and Turkey, which we are seeing in the press a lot and, certainly in Turkey, we have had next to zero exposure for a long time now, avoiding what we saw coming for a long time now, that Erdogan is just really determined to break the economy and seems to have succeeded of late. But, again, you know those are outliers in the bigger scheme of things and Egypt again shows up there. So again it is not one brush for all. You should differentiate between these countries to find the sweet spot and find those countries that are managed well and that are going to come through the COVID crisis fairly well and where there is still a lot of potential upside.
On potential upside, I think I will pass over to Antoon again just to look at valuations and put that into perspective a bit.
Local currency valuations present attractive yield pick-up
Real yields particularly attractive in high-yield space, while EM FX is still near March lows
Alright, so there is no EM crisis (laughs)… That is quite a big statement, but there really isn’t. I think, as Werner said, we can talk about an external crisis in Turkey and we can talk about a building debt crisis in Brazil, but we cannot talk, as perhaps has previously been the case, about an EM crisis at this point in time.
EMFX valuations are near multi-decade lows
EM vs US real yields %
Source: Bloomberg, Haver Analytics. 1 January 2011 to 31 May 2020 (left chart); 31 January 2003 to 30 June 2020 (right chart). For further information on indices, please see the Important information section.
Nominal and real effective exchange rate (GBI-EM weighted)
Now what are we being paid? Okay, fine, you know those are the risks, those are the dynamics – what are we being paid? This slide in front of us shows two sides of the valuation Rubik’s Cube. It shows: (1) the EM real yields versus DM or US real yields and what we can see there is that certainly in the high-yield pocket of emerging markets – local markets, and this is the Brazils, this is the South Africas, the Turkeys, etc., – you continue to [be] being paid a very, very big spread and that spread is in the real space; if you look at that spread in the nominal space and specifically in the hedged nominal space, this is really a trade that excites me and that we have on in size at the moment, is hedged local bonds.
Okay, so local currency, is obviously driven by two components – hedged bonds and FX. FX we are excited about because of the growth differential, because of healthy externals, because of the valuation components. If you look at the right-hand side, the return from FX alone is being challenged by low carry. Again, the carry differential to DM is intact, along with the growth differential but, admittedly, that carry component is at the low end of its historical spectrum. Everybody knows this about the world, that cash is, unfortunately, not paid a lot. What is actually quite exciting and is being paid a lot is the hedged bond side of things.
So the US Fed funds versus 10-year, that is 10 bps versus 60 bps. That is about a 50 bps curve between Fed funds and the US 10-year. The average dynamic within emerging markets of the same sort of math, the mon pol [monetary policy] versus 10-year spot, pays you 240 basis points – right, so that is 5 times, 6 times what you are being paid for similar duration risk in a hedged, so without taking any FX exposure. That average, however, of 240 bps does hide some pretty extreme differences between the high yield and the low yield, as you can see, also in the real space.
Right now, there are some of the historically steepest curves in EM in the 10 years plus that Werner and I have been managing money in emerging markets. South Africa, of course, being a prime example: there’s now 700 bps of carry and roll between the South African Reserve Bank rate and the 10-year. It is incredible. Of course, it comes with the fiscal risk but, typically, your fiscal risks play out in crises on the hard currency space, not on the local currency space.
Okay, so on hedged bonds – really excited; on the FX – also excited but more because we think there aren’t any obvious pitfalls that can lead to currency crises.
Hard currency valuations still offer attractive entry point
EM HC debt still offers a meaningful pick-up over developed market spreads
This is the hard currency side of things. Just because this presentation is more focused on the local side, but suffice to say the point we made about high-yield spreads in emerging market debt not having come back all the way in the dollar space, so there remaining a value premium there remains the case and, coupled with the analysis on the debt side of things, we continue to like that as per earlier comments.
EM credit spreads look attractive relative to US spreads, particularly high yield
Attractive spread pick up to US HY in particular
Source: Bloomberg, JP Morgan, BAML, Ninety One, 30 June 2020. For further information on Indices, please see the Important Information section.
EM spreads decomposed by rating
Tailwinds from scarcity of yield in DM and a weak dollar outlook
So this is the other side of the coin. Currency is, of course, a coin having two sides and, unfortunately, this is a picture we are all too familiar with and this is our challenge and where we want to deliver the ask to our clients is that there is right now $33 trillion of global debt that trades at less than 50 bps. That is just not enough. It is not enough for our end clients, for our insurance clients, for our pensioners, etc., which means that, we have got to go and look for clever and smart risk and yield pick-up elsewhere, which we argue is available in emerging market debt.
On the right-hand side, taking a more structural view of the dollar, well, the picture sort of tells the story. The twin deficits in the US doesn’t bode well for the dollar – everybody has their own view on the dollar, all I’m saying is right now it has some pretty serious secular headwinds and we are seeing perhaps some of that play out in the market, although some of that is also Europe leading the bounce.
Financial repression in developed markets and reasons to expect a weak dollar
There is now $33tn in global debt trading at less than 0.5% yield…
Source: Ninety One, Haver, Bloomberg, June 2020
…while the dollar faces headwinds
Investors remain structurally underweight despite funding status
These next charts sort of continue on that theme, again work that all of us are, unfortunately, familiar with but just underlining the seriousness of what our task is about, is to go and find the yield and the returns that pay within emerging markets and that is what we are about.
Pension fund deficits remain large…
Source: Mercer, S&P 1500 June 2020; JP Morgan, September 2019
…Average pension fund EMD debt are structurally underweight
So on the fundamentals, starting off with the growth, we mentioned that EM has still got that growth differential versus DM. We have got credible monetary policy, controlled inflation and EM yield curves that are too steep, as Antoon mentioned, given that credible monetary policy.
I mean we have done the yield curves for almost 20 years now using zero curves and using percentiles and there are four of our markets that are between the 95th and 99th percentile steep. So we have got incredibly steep yield curves, given the credible monetary policy we have seen, and we think the debt levels that are manageable don’t justify the steepness of those yield curves Antoon mentioned.
We have got continued resilience on the external side. We think that EM currencies are cheap and that will facilitate exports for them and their balance of payments remaining resilient. So you know that ties in a little bit the structural story with the valuations that Antoon mentioned.
Credit spreads is the one we haven’t mentioned in context to the structurals. Safe to say from that perspective, whilst the Fed is printing as much money as the world wants and that money is being forced into US credit, there will be spill-over into EM credit and the same being done by other developed market central banks. So there is a massive anchor to those spreads and the search for yield will continue in that space as well.
The fundamental case for EM stacks up in the COVID era:
- EM economies to continue to outgrow their developed peers through the COVID-19 fallout and beyond
- Credible monetary policy on the whole, allowing controlled inflation and gradual moderation in real interest rates over time while still maintaining a sizeable rate differential to DM
- Debt levels to remain manageable on the whole and significantly below developed markets
- Continued external resilience, with cheap EM currencies facilitating exports and inward financial flows.
Valuations are compelling:
- EM local yields offer a compelling pick-up in both nominal and real terms
- EM currencies are at multi-decade lows and the US dollar is structurally overvalued
- EM credit spreads offer an attractive pick-up to DM credit markets.
We believe EMD offers a compelling potential return proposition away from low-yielding assets in developed markets
Moderator: You talked about US dollar weakness. Can you comment on US dollar strength in the past years and how that has affected local currency?
Antoon de Klerk:
And so why has the dollar been such a strong currency over the period? There are two reasons. There is a good and there is a bad reason. The good reason is, if the US (which it did, arguably) outperforms other developed markets – and that was partially perhaps the case post the GFC and perhaps it got its house in order and there was a sustained growth differential between the US and other developed markets – that puts pressure on EM as a whole; a sort of US exceptionalism story. So if we think that the US is the only show in town and going to be remaining the only show in town for the next decade, you know we should park all our money in the US even if it is not rewarded… we don’t think so. We think the US has got serious challenges, not insurmountable, but that is the good reason why the dollar was outperforming: higher interest rates, higher growth.
The bad reason is political uncertainty. When Trump goes after China, the dollar becomes a safe haven and that then becomes the reason for the dollar to outperform.
So those are the two main reasons. The uncertainty and the safe-haven premium – it is difficult to see that going away. So I do think that the safe haven premium in the US remains (the market’s natural reaction would be to go to the US) but I do think the growth premium, the US exceptionalism, that is being seriously challenged and that is certainly not our central scenario.
Moderator: If we assume that QE is the way forward in DM for sure, is it also the way forward in the emerging markets universe? That is one question. The other question is, and that is more related to your answer just now: what is your view on the renminbi as the future currency of reference in Asia?
Werner Gey van Pittius: I will pitch in on the QE question. So I think it is fairly simple that a broad-brush statement on EM is very difficult to make. So you have got Poland on the one side being very aggressive and vocally so and when we mean aggressive, they bought all of 5% of GDP of bonds. Let’s not mess around with that definition of what QE is because it means different things to different people but Poland bought 5%. Now you go and compare that to some of the DMs that bought 20% plus. So it is very modest in EM, Poland is the largest and then there are a couple that have doubled a bit with 2%, a couple of 1% and there are also a couple of countries that just said no way is that is going to happen; we just will not go there. So [in] some countries like Russia it’s just a no-go area, it just will not happen.
So I think, like inflation targeting, where DM went, EM will follow, and you see EM is following now but it is still very cautious and very early days and, certainly, EM knows its problems. QE only really needs doing and is only really effective once you get down to the zero lower bound and you have done enough with rates. Given that EM still has rates mostly in the high yielders at decent levels, QE is not an option for them yet.
Maybe I will leave the renminbi one to you, Antoon, since you are on the currency already.
Antoon de Klerk: Your view on renminbi is obviously tied into your view of the economic success of China. It is clearly tough to argue its historical success. I think almost mathematically yes – right? It is a growing part of the Asian and global economy, which means more transactions as a share of total transactions are being done in renminbi. So people are using it more and more and GDP growth is bigger.
I mean what do you need for something to become a “reserve currency” – right? You ultimately need to trust the institutions and that is more of a political question. Personally, I think what makes it a little bit difficult or you know structurally difficult for China and why it perhaps hasn’t happened yet is its capital controls on Chinese.
So to the degree perhaps that China has the confidence to open up, some of those capital controls, I think that the moment we catch sight of that sort of development, then that will certainly accelerate. It is also interesting that, you know, China is coming into the GBI-EM Index. China is a big chunk of the emerging market equity indices. So the language of renminbi and the amount of financial transactions in renminbi in a global asset owner’s perspective, not just on the transactional import/export basis, are using the language and, once you use the language and it appears on your P&L ledgers, yeah, it is certainly fair that is the trend.
Moderator: Can you talk about your highest convictions at the moment?
Antoon de Klerk: What are the positions that really excite me? Werner has mentioned Egypt. It is an old favourite. The fact that $20 billion left it makes me the more excited about it and you know their currency has moved 1.5%. So we are back in that trade.
Peru I mentioned, the hedged bonds, that is a 450 bps hedged deal, with massive carry and roll. I like the Russian ruble at the moment. What really excites me is when structurally good stories get punished due to technical factors, you know it’s tax season or some headlines, and where you really know that the current account, the way the place is managed, from an economics perspective at least, is quite solid.
So those are some of the ideas. I am also increasingly excited about some of the Eastern European currencies, given their growth performance and outlook. So I am going to stop there.
Moderator: Werner, what about within EMD, top-down?
Werner Gey van Pittius: So more top-down, we remain overweight [risk] across all of the portfolios, from hard currency to blended to local. On our hard currency portfolios, given what I said about the Fed and how they messed up our markets by buying everything in sight, now we are sitting at all-time yield lows on the IG component of US but we are not at spread lows. So there is still some room for spreads to rally in the hard currency space, although some of these bonds have rallied 20 points already. So we have trimmed some IG exposure on the hard currency side; we still remain overweight but we are becoming a bit more selective. In March, we did an enormous amount of work comparing the typical sell-off cycles – Antoon alluded to this at the beginning of the call – IG has a liquidity event, IG spreads blow up as does high yield and EM FX and everything else but the first asset class to really recover is IG, as Antoon said, and we have seen a lot of that recovery.
So we have also commensurately added a lot in March, April and even early May and some of what we have added back then has already done what we expected it to do: retrace 75% of the sell-off, and we have trimmed some of those out on the portfolio.
The next step, obviously, from the IG is that high yield starts doing well and we have seen that in selected names like you know Egypt, Ukraine, some work-outs in Ecuador and Argentina being put in place, so that is good for the asset class. So we think high yield will continue to outperform for a while as that recovery takes more time, is more nuanced, needs much more homework on the fundamentals of the country for you to get involved in them. And then the third leg, of course, is then EM REERs or EM currencies recover and that is kind of where we are starting to shift on our portfolios, is that we are starting make space for upping the FX exposure. That is where we are at – positive on the asset class. We pulled it back in March. We have seen a lot of that play out and now we are starting to rotate the book into the next phase of the recovery.
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