Diving into the complexity of EM debt investing

Episode notes

Maintaining an edge in long/short investing isn't easy., especially in emerging markets. On our latest episode of InvestorExchange, host Chris Perret sits down with portfolio manager Mehak Bhatia for an engaging conversation about investing and managing risk in emerging markets credit. Discover how Mehak's personal and professional journey shapes his approach and helps him maintain his edge.

1:20 – Mehak’s career path to Wellington

5:30 – Prudent risk taking

6:30 – Emerging markets trading process

8:26 – Mehak’s “edge”

10:15 – Current EM environment

13:15 – Overlooked EMs?

14:35 – Cricket and professional goals 

Transcript

Mehak Bhatia: You're taking extra risks by going into emerging markets. And as I said before, those risks are not necessarily sometimes the economic risks, they could be political risks, they could be geopolitical risks or could be governance risks as well. So that's what my job entails on a day-to-day basis, which is knowing and evaluating those risks.

Chris Perret:  A common phrase we often hear is there's always a crisis to be found in emerging markets. Since the earliest days of the asset class, macro and market-driven stress events have caused major headaches for investors on a fairly regular basis. This is an asset class that requires specialization, rigor, and maybe most important, an ability to assess, take on, and manage risk. Hello and welcome to the Wellington Investor Exchange. My name is Chris Perret, platform leader within Wellington's hedge fund business. Joining me today is Mehak Bhatia, a portfolio manager who specializes in emerging markets. Mehak is an expert on EM external debt markets and a true specialized risk taker within the space. He has spent his entire career in various trading roles on both the sell side and the buy side. Mehak, welcome to the podcast. It's great to have you today.

Mehak Bhatia: Thank you for having me, Chris.

Chris Perret: Let's just jump right into it. I'd love to hear about your story. How did you get into this fascinating space?

Mehak Bhatia: So, as you know, I come from a small town in India called Amritsar. When I was growing up, I was good at maths and I wanted to choose what to do next. And, coming from a small town, it's either engineering or medicine, and I chose engineering. And given I was good at maths, I did some hard work and ended up in Indian Institute of Technology in Delhi. I think that's what changed my horizons a lot. Working for professors who had patents in their name. That really broadened how I look at the world. From there, I got an internship with Ericsson in Sweden. It was the dot-com era. It was all about coding and computing. But coming for this internship, I realized there's a lot more to the world than just coding. So I was looking at how they do marketing and strategizing and selling, and that really got me interested in the rest of the world and how it works. And I thought, that's where I want to be. So I go back to India, and I joined an MBA course at Indian Institute of Management in Calcutta because I want to learn more about sales and marketing.

Chris Perret: All right. So you, you get through your MBA program, what comes next?

Mehak Bhatia: So once I get to the MBA program, there’s the placement day and Deutsche Bank is there. It was a time when structured products and finance credit default swaps and credit default obligations were becoming more and more relevant. 

Chris Perret: This is pre-GFC. 

Mehak Bhatia: This is pre-GFC. And they were looking for people who had a maths background who could do that but also have the expertise to know about economics and know about sales and be involved in that. And I had a background in both and that's what really clicked for me. And then coming to London was an added bonus. So that was how I ended up with Deutsche in London.

Chris Perret: That's definitely an added bonus. So okay, so you're at Deutsche, and you join a rotational program.

Mehak Bhatia: That's correct. So I joined the rotational program and it was quite good because we could rotate in different desks and understand what they do. And one of the desks I rotated on was emerging markets credit trading. What clicked for me in emerging markets credit was that it was in a nascent stage of growth at the time. I came from an emerging market myself, and it wasn't just about the economics of it. It was about politics and geopolitics and sometimes knowing about who's running the country, whether it's a dictator or whether it's a democratic government. And that really fascinated me. And that's how I went into emerging markets to learn more about that and be a part of that. And I think coming from a maths background, I was trying to judge the probabilities of where these countries will end up. 

And from Deutsche, I continued to grow to become the head of EM credit at Morgan Stanley and then globally the head of EM trading at UBS. And then there came a time where I had to choose whether I had to become a pure manager, where I was running a desk, or continue taking risk. And I love taking risk. I love being close to the markets. I love knowing the pulse of the markets. And I think I do that really well. And that's when Brevin Harwood came calling. There was an opportunity to set up an emerging markets credit business at Brevin Harwood. It's, as you know, a macro shop. But they were looking to expand into emerging markets. And I think my skillset really was fit for that because I look at emerging markets from a very macro, top-down approach to see what is happening with emerging markets based on what's happening across the globe as well. 

Chris Perret: And then Wellington comes calling. Tell us about why you decided to join Wellington's EM fixed income business.

Mehak Bhatia: I know Jim Valone, who set up the emerging markets business at Wellington from my sell side days. I have a great respect for him, for the business he set up and, and the opportunity that was given to me that he was retiring and I could fill in his shoes. I thought it was a great opportunity, and it was a big stepping stone for me to work with five sovereign analysts, five corporate analysts would give me a lot of advantage in terms of doing a lot of the work that I was doing in-house. I was relying a lot more on the sell side banks and economists for doing a lot of that work. 

Chris Perret: Excellent. So why don't we switch gears? Let's talk a little bit about how you operate. And before I do that, though, I want actually touch upon one philosophical thing. You've touched upon being a risk taker. And my understanding is that also extends even kind of beyond the work environment. So let's maybe just talk a little bit about you as a person Mehak, how do you kind of define your personality and some of the things that you like to do, and how that kind of relates back to investing.

Mehak Bhatia: Well, I think of myself as a prudent risk taker, not jumping to opportunity just without analyzing what the risks are, but still being able to take risks. So, I love scuba diving. I love visiting all these countries, that have some risks, the smaller ones where you might have some risks when you're visiting them, but still risks that you can judge and you can take them prudently. And, and I enjoy that. I think that's part of the business. You have to assess the probabilities. You never have full information on what you're getting into but knowing that you're on the right side of probabilities helps.

Chris Perret: Absolutely. So let's dive in. Walk me through your process. Talk me through EM credit trading. What exactly does that entail in terms of your day to day?

Mehak Bhatia: As you know, in emerging markets credit is about trading hard currency bonds issued in either dollars or in euros, mostly by sovereigns of emerging markets or corporates and quasi sovereign entities in emerging markets. And typically these bonds will offer much higher yields than developed markets because you're taking extra risks by going into emerging markets. And as I said before, those risks are not necessarily sometimes the economic risks, they could be political risks, they could be geopolitical risks or could be governance risks as well. So that's what my job entails on a day-to-day basis, which is knowing and evaluating those risks. And I look at my process as combining a top-down macro approach with a bottom-up fundamental credit approach. When I think of that top down, I look at what's happening with the macro in the global world. What is happening with growth? What is happening with inflation? What is happening with commodity prices? Because a lot of emerging markets are still either commodity exporters or commodity importers, and that's a big portion of their business. What is happening with global risk appetite and dollar, for example, in that environment? Because emerging markets have a tendency to dollarize, and that could use up a lot of their reserves at times. And then I combine it with my fundamental credit knowledge, doing an in-depth analysis on what is happening with emerging markets, how does their fiscal position look like? How does a monetary position look like? What imbalances do they have? And visiting those countries and meeting the policymakers as to what response they will have if there was a shock and knowing their responses. And that's what helps us identify what are the good opportunities in emerging markets and what are the bad opportunities in emerging markets.

Chris Perret: And what do you think is your edge?

Mehak Bhatia: So, I would say I have three main edges. The first is the experience I have. I think over the years, I've developed a knack of knowing where the vulnerabilities in emerging markets will come from. That might be in terms of not doing enough consolidation. Maybe not having enough FX reserves or depleting them too quickly or not doing the right things politically. And having some election cycles that might play into the vulnerabilities. So, focusing on that I think allows me to get on those opportunities early. Second, obviously, is research, the depth of research. The more research you do about these countries, the more you will understand what the reaction functions will be in terms of shocks when they hit. And whether they have other avenues where they can go to, whether that might be the multilateral agencies, IMF, World Bank, or it could be some other countries that they can get help from. So knowing that really helps when the shocks hit. And what are the sources of financing they would have. And then the third is flexibility. In a lot of the things that we look at, there are different instruments where you can express a trade. So when I say that you could have bonds from a sovereign country that you can buy, it could be a quasi-sovereign or a corporate entity that has issued bonds that you can invest into. Or you could have credit default swaps as a way of expressing the trade. And what we do a lot of analysis on is, what is the best expression of a trade. Because sometimes you do get things wrong, you don't always get them right. So you have to do all the analysis and probabilities on what will be my downside if I do get it wrong. And knowing that helps you be flexible, be in at the right time, take advantage of that, and make money.

Chris Perret: Let’s talk about the current environment. So one thing that is very evident is that spreads are back to their post-GFC tights in emerging markets. How do you navigate this as a PM who has a directional component to your process?

Mehak Bhatia: So 2025 has been a great year for emerging markets. Part of that is because the dollar has been softer, growth has been doing okay, and inflation has been coming down, which has really helped emerging markets, which had years of fiscal stress from Covid and then followed by the Russia-Ukraine war. I wouldn't say we didn't have our share of volatility this year. We did, post April first, when the tariffs came on. But because I think emerging markets have built a lot of buffers over the last few years, that's really helped them. And now, as you say, we are at a level where spreads “X triple C” as I call them. So really if you take out the very low end of the spectrum in emerging markets, spreads are at tights since the GFC, which means that there are a lot less opportunities from that perspective, and investors are not really getting paid for the risk they are taking at the moment in emerging markets because of the exuberance that we have had over the last few months. There is still a lot of dispersion between the countries, and the ratings of different countries. There's a lot of elections still happening in emerging markets. So there's a lot of political calendars to look at. A lot of the countries are on IMF programs are going to get on IMF programs, and they promise fiscal consolidation as part of that. So how they will fare through that. So there's a lot of opportunities on that end, which is what we are focusing on, because there are always winners and losers through that. And that's where I think we can still do pretty well, when we look at the asset class. And that's what helps us when we are doing our in-depth research from the bottom-up perspective. That's what we are trying to differentiate between at the moment.

Chris Perret: So Argentina might be one example to explore a little bit. They, they've been in an IMF program, I believe, and still are.

Mehak Bhatia: Yes, correct.

Chris Perret: They also have recently gone through an election and have a new government in place. So, is this an opportunity to invest in Argentina as they've potentially turned the corner?

Mehak Bhatia: Argentina could be a good investment opportunity. Since President Milei took office, he has embarked on a fiscal and monetary consolidation path, which I think markets have rewarded him with. Spreads have come in considerably because he's shown the willingness to do things differently and do things right, which markets and especially external markets have rewarded him with. However, there was an election a few weeks ago with the province of Buenos Aires where he didn't do well. So, as usually happens in emerging markets, fiscal consolidation sometimes comes at a political cost. And that has cost him a little bit. We will see how the reform progress goes from here. I would hope that he continues on that reform progress. The hope is that he will continue with the fiscal consolidation path, that and the reform path that he's promised, and I'm sure the markets will reward him even more from here on.

Chris Perret: Maybe, talking about some other countries, what's in your mind, one of the most overlooked countries or regions that you follow today?

Mehak Bhatia: I wouldn't say overlooked, but I would make two references in that respect. One, the more boring countries, as I call them. There are a lot of Eastern European countries which are entering the euro. Bulgaria is one example of that. They are going to join the euro in January. These countries have done the right policies, have done the reforms, and European Union is a big anchor for them. So that's where we see spreads continuously tightening towards eurozone levels as they enter Europe and do the right reforms. And then the second is Africa where we see a lot of dispersion. Several African countries are oil exporters or gold exporters. And we've seen those terms of trade shocks play very differently in the last few months, with oil actually coming off and gold skyrocketing… 

Chris Perret: Continuing to go higher… 

Mehak Bhatia: Exactly. So that terms of trade shock, as it percolates through Africa, there will be a lot of opportunities. A lot of them, as I mentioned, are on IMF programs already and are promising a lot of fiscal consolidation. So we are watching for that. Hopefully they keep on that path and that will create a much better future for them and a lot of opportunities for us as well to invest in them.

Chris Perret: This is great. Mehak, I'd like to ask you about one more of your personal interests. So you're from India. From my understanding, you're a big fan of cricket. Why is this such a beautiful game?

Mehak Bhatia: I mean, look, coming from India, it's hard for you not to love cricket. I'm a great fan. It combines strategy and skill. That's what I love about the game. And one ball or one over can change the whole game. I mean, most people love the really short format of the game.

Chris Perret: The IPL.

Mehak Bhatia: IPL, the Indian Premier League has made it very popular and…

Chris Perret: And that's like a two-hour match.

Mehak Bhatia: It is a three-hours match.

Chris Perret: Versus could be multiple days.

Mehak Bhatia: Could be five days.

Chris Perret: And it's that the rise of it has been astronomical. What in your mind is kind of driven that, that popularity?

Mehak Bhatia: I think two things. One is that it really brought in young talent from all over the country, and outside as well, into the country, which really helped. But second, there's the whole atmosphere that goes around it. Bollywood actors owning teams. You go to the stadium, you have to go there and experience it for yourself. In India, I mean, you have cheerleaders, you have all the music, and you have all the dancing that goes with it.

Chris Perret: It's the theatrical experience. 

Mehak Bhatia: It's the theater which really creates the experience to a different level. And people are just coming in to enjoy themselves. It's like one of the most enjoyment experience that a lot of Indians have. Tickets are not very expensive, and it's a good time.

Chris Perret: They pack the house too, right. You can get over 100,000 people sometimes in these stadiums.

Mehak Bhatia: They do, yes. I mean, I've taken my son to a few games in India and they're like 80,000 people. It's amazing though.

Chris Perret: Wow. Very good. Why don't we end with the one last question, Mehak. What's your goal over the next three to five years? What do you want to accomplish here at Wellington?

Mehak Bhatia: I think my focus is to continue doing what I'm doing and be best at it. Continue to bring very good results for our clients, continue to grow the business, and increase our footprint. And at the same time, I think I want to make sure that I'm mentoring the team that we have. We have a very strong team here at Wellington. And if I can help them find their edge, that's a way that we can all grow together. And I think that will be great.

Chris Perret: Love it. Well, Mehak, I want to thank you for joining today. It's been an absolutely fascinating conversation.

Mehak Bhatia: Thank you so much, Chris, for having me. 

Views expressed are those of the speaker(s) and are subject to change. Other teams may hold different views and make different investment decisions. For  professional/institutional investors only. Your capital may be at risk. Podcast produced January 2026.

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