IN the same week that credit-rating agency Moody's Investors Service downgraded Malaysia's sovereign ratings, Simon Wells arrived in Hong Kong to peddle his new emerging-market debt fund. It should have been a tough sell. But Mr Wells, a London-based managing director of PRICOA Asset Management, came prepared with an encyclopedic knowledge of his speciality, ready and willing to discuss such bond-market arcana as the relative merits of Croatian, Jordanian and Moroccan debt paper. Suffice to say that in these dark days of the Asian financial crisis, even such seemingly obscure bond offerings as these appear, at least to Mr Wells, to offer better value than just about anything issued in this region. Not that he is down on Asia, it is simply that Mr Wells is not ready to put much money here until the situation in Japan becomes clearer. 'There will be opportunities for investors in Asia . . . within months, say, six months,' he said. 'Still, do put this caveat in, if the Japanese start being really stupid, all bets are off.' His language is not calculated to win favour with Tokyo's bureaucrats. But then, Japan is hardly an emerging market and its bonds pay interest at miniscule rates, so Mr Wells is unlikely to want to buy any Japanese government bonds in the forseeable future. Instead, when PRICOA, the asset-management arm of the Prudential Insurance Co of America, launches its Emerging Markets Fixed Income Fund next month, the portfolio is likely to be heavy on Eastern Europe and Latin America and light on Asia. 'You can be mega-negative about Asia and have nothing. But I think the time for being that negative was earlier this year, and that time is now passing,' he explained. 'We will probably be underweight rather than out of the market all together. Let's put it that way.' Mr Wells sees Eastern Europe as offering the best balance between risk and return among emerging debt markets, and Latin America as offering the best performance. In Europe, he is keen on Hungary, Poland and perhaps the Czech Republic; in Latin America, he likes just about everything - Argentina, Columbia, Mexico, Panama, Uruguay - except Brazil. That country, he warns, has an election coming up, a currency pegged to the United States dollar, high short-term interest rates and shaky financing. 'Brazil is one to keep a very close eye on,' he said with concern. Mr Wells and Gabriel Irwin, co-heads of PRICOA's global fixed-income group, plan to run their emerging-market fund on a top-down basis, which means they will allocate assets based on the macroeconomic outlook for particular countries rather than the microeconomic analysis of particular companies. Not surprisingly, then, they intend to buy sovereign debt for this fund rather than corporate debt - 'the gain you can make from investing in corporates in many of these countries is not that high' - and dollar-denominated debt rather than local-currency debt. They expect to keep three-quarters of the fund in dollars and vow that all non-dollar exposures will be actively managed - although Mr Wells acknowledges that traditional hedging strategies are often not cost-effective in immature emerging markets, where volatility reigns supreme, terms are short, interest rates high and hedging expensive. 'If you buy a very short maturity and you hedge it out, effectively you're hedging out what you just bought,' he said. As conditions improve in Asia, Mr Wells says he will look seriously at dollar-denominated sovereign debt in the Philippines and South Korea. Korean government paper is paying interest at rates about 4.4 percentage points higher than comparable US Treasuries, he says, and is beginning to look attractive. Moody's poor opinion of Malaysian sovereign debt notwithstanding, 'this is a great time to be investing in emerging markets', Mr Wells said.