LIVE MARKETS-Pakistan, Argentina among Ashmore's top Frontier debt picks

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PAKISTAN, ARGENTINA AMONG ASHMORE'S TOP FRONTIER DEBT PICKS

Ashmore analyst Ben Underhill names Pakistan and Argentina as his top picks among frontier market debt, while Nigeria and Uzbekistan stand out for their currencies.

Frontier markets (FM) are smaller, less liquid economies, and investments in these regions typically carry higher risk than those in larger emerging markets.

Political stability following the mid-2024 elections in Pakistan, and Argentine President Javier Milei's 'shock therapy' reforms have helped unlock IMF funding for both countries this year.

Moderating inflation in both economies further strengthened the case for their debt instruments.

Most of Pakistan's longer-dated bonds have gained more than 10% so far this year, Tradeweb data showed, hitting a three-year high after S&P Global upgraded its sovereign credit rating in July.

Argentina's longer-dated maturities rallied in April following the IMF deal, but have stalled amid corruption allegations against close aides of Milei and his party's recent electoral setback in Buenos Aires.

If Milei and his allies can consolidate legislative power in Argentina and can accelerate economic reforms, Argentina could eventually bring about fiscal rating upgrades, said Underhill.

Emerging market's growing interconnectedness with the global economic cycles has diminished its appeal to offer uncorrelated return, making frontier markets a more compelling play for active investors, Underhill added.

Underhill says that FM debt tends to have a lower duration risk - that is, less sensitivity to interest rate changes - compared to EM sovereign debt. Since FM economies are domestically-driven, improving economic fundamentals are key driver for returns.

Returns are particularly amplified during periods of U.S. dollar weakness. The U.S. dollar =USD has shed over 9.8% so far this year, already its worst performance since 2017.

(Purvi Agarwal and Medha Singh)

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