Liontrust global bond scoops up Russian bonds

The Liontrust GF Global Strategic Bond fund is buying up Russian debt as the currency tanks.

Michael Mabbutt, manager of the £61.8m fund, says the country is “particularly interesting” because on fundamentals it is very attractive.

“On the current account, budget deficits and government debt, all as a per centage of GDP, Russia ranks well relative to many developed countries, let alone other emerging markets,” he explains.

The nation has a current account surplus that the IMF believes will remain at 3 per cent of GDP as imports sink in line with oil export revenue.

“Its budget is almost in balance (-1 per cent of GDP), and the IMF forecasts a similar outcome in 2015 as the weaker rouble and reduced government spending offset lower dollar oil revenues.,” Mabbutt says.

“Government debt is set to remain, at just over 16 per cent of GDP, extremely low by international standards.

Foreign reserves stand at more than $400bn and the “highly orthodox decision” top float the currency means that can be used to maximum effect, he adds.

“Russia therefore finds itself in a very different place than it did in 1998, when incapacity to pay led to a default on both US dollar and rouble debt.

“Russia maintains substantial capacity and, we believe, willingness to pay. We have therefore been building a position in Russian assets; not only in US dollar bonds, but also in local currency bonds and currency.”