![Show Menu](styles/mobile-menu.png)
![Page Background](./../common/page-substrates/page0017.png)
15
Morningstar FundInvestor
January 2
015
Years of weak growth in Russia’s oil-dominated
economy left it particularly vulnerable to sanctions
announced earlier this year. But the key destabi-
lizing event in
2014
was the rapid fall of the price
of oil, which had a negative impact on Russia’s
fiscal budget and trade balance, as well as the value
of the ruble.
The situation intensified on Dec.
15
, when the ruble
tumbled
10%
in one day, prompting the Bank of
Russia to raise its key interest rate to
17
.
0%
from
10
.
5%
. The main culprit was a murky transaction
between the Central Bank of Russia and Russia’s
largest oil firm. The central bank indirectly provided
$11
billion to Rosneft to fund external debt repay-
ments due before the end of the year. That stoked
fears about the ability of Russian firms caught up
in U.S. and European sanctions to repay or refinance
the billions of foreign-currency debt due in the next
two years. These firms, along with a number of
local banks, are currently unable to issue debt on
Western capital markets. If sanctioned firms are
forced to repay (instead of refinance) their external
debts, a large outflow of U.S. dollars would result
in additional downward pressure on the ruble.
Coming into December, Russian debt comprised
roughly
8%
of the hard-currency-focused
JPM
organ
Emerging Market Bond Index Global Diversified,
6%
of the local-currency
JPM
organ Government Bond
Index-Emerging Markets Global Diversified bench-
mark, and
5%
of the
JPM
organ Corporate Emerging
Markets Bond Index Broad Diversified, a corporate-
only bogy.
Within the emerging-markets debt landscape, Russian
sovereigns and corporates were already some of
the hardest hit for the first
11
months of the year when
the bonds, and the ruble, experienced steeper slides
in the opening weeks of December. The table shows
the
10
emerging-markets debt funds that shed the
most for the trailing month through Dec.
31
.
At the time of their latest holdings reports (September
or November), these funds had between
10%
and
22%
invested in Russian debt. While two funds on
the list focus on corporate debt, which is typically
denominated in U.S. dollars and euros, the other three
faced additional headwinds because of their focus on
bonds denominated in emerging-markets currencies.
So far this year, almost all emerging-markets curren-
cies have lost ground next to the U.S. dollar. However,
the ruble was down by much more than that.
Morningstar analysts rate six funds in the emerging-
markets debt category, and these funds sported
exposures to Russian debt ranging from
5%
on the
low end for
TCW Emerging Markets Income
TGEIX
to
21%
on the high end for
PIMCO Emerging
Markets Bond
PAEMX
. So, it was no surprise to
see the former hold up much better than the latter
during the past month.
PIMCO Emerging Local
Bond
PELBX
held a lower stake in Russia (
8%
), but
this fund was hit harder because of its single-digit
exposure to the ruble and stakes in other emerging-
markets currencies.
Dodge & Cox International Closing
Dodge
&
Cox said it will close
Dodge & Cox Inter-
national Stock
DODFX
to new investors at the end
of trading on Jan.
16
. “The soft close is designed
to proactively ‘tap the brakes’ on the fund’s growth,”
the firm said in a statement. “We believe this deci-
sion is in the best long-term interests of the fund’s
existing shareholders, as it allows us to have stable
and balanced growth within the fund.”
œ
Emerging-Markets Bond Funds
Ticker
Total Ret 1-Mo
(Mo-End)
Base Currency %
Total Ret 1-Yr
(Mo-End)
Base Currency %
Total Ret Ann 3-Yr
(Mo-End)
Base Currency %
Dreyfus Emerging Markets Debt Lcl Ccy
DDBAX
-7.52
-10.65
-0.62
Acadian Emerging Markets Debt
AEMDX
-6.74
-8.43
0.31
Stone Harbor Local Markets
SHLMX
-6.68
-8.55
-3.04
PIMCO Emerging Local Bond
PELBX
-6.65
-6.27
-1.12
Aberdeen Emerg Mkts Dbt Lcl Ccy
ADLAX
-6.40
-7.26
-1.22
MFS Emerging Markets Debt Local Ccy
EMLAX
-6.38
-4.30
-0.58
HSBC Emerging Markets Local Debt
HBMAX
-6.29
-4.92
-1.77
Prudential Emerging Mkts Dbt Lcl Ccy
EMDAX
-6.07
-4.78
0.14
Ashmore Emerging Mkts Lcl Ccy Bd
ELBIX
-6.07
-6.21
-0.34
Lord Abbett Emerging Markets Lcl Bd
LEMAX
-6.02
-7.05
Data as of 12/31/2014.