Legg Mason's Western Asset Management portfolio manager sees emerging markets 'less vulnerable'

By Aaron Hochman-Zimmerman

New York, April 1 - Emerging markets have been less damaged than major markets by the global downturn and are likely to stay "less vulnerable," said Keith Gardner, senior portfolio manager, emerging markets debt for Legg Mason affiliate Western Asset Management.

In 2009, "we've started out pretty well," he said in a conference call summarizing the first quarter. "Spreads are tighter by over 50 basis points."

Many countries continue to develop their banking systems and monetary policies as well as their local markets, which are a positive, although they have lost 7.5% of their value collectively.

The category is "not immune" from damage flowing in from the major markets, he said, and each sector within the emerging world has fared differently amid the external toxins.

Emerging Europe has done "the worst job in terms of reducing vulnerability," he said.

Russia has been a good value, but its future is dependent on oil prices.

Asia needs to be concerned with external health because it relies so heavily on exports, while for its part, Latin America "has done the best job" of isolating itself from the world's troubles, he said.

However, within Latin America, Brazil, Chile, Colombia, Panama and Peru have been the clear outperformers over Argentina, Ecuador and Venezuela.

Gardner was optimistic, but cautioned that spreads could widen further.

He recommended "a higher cash position as a hedge against credit exposure."

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