Emerging Market Bond Fund Euro Accumulator

The Fund aims to maximise the total level of return through investment, in a diversified portfolio of Emerging Market (“EM”) Corporate and Government fixed income securities as well as up to 15% of the Net Assets of the Sub-Fund in EM equities. In pursuing this objective, the Investment Manager shall invest primarily in a diversified portfolio of EM bonds rated at the time of investment “BBB+” to “CCC+” by S&P, or in bonds determined to be of comparable quality. The Fund can also invest up to 10% of its assets in Non-Rated bond issues and up to 30% of its assets in Non-EM issuers.

The Fund is actively managed, not managed by reference to any index.

The Fund is classified under Article 6 of the SFDR meaning that the investments underlying this financial product do not take into account the EU criteria for environmentally sustainable economic activities.

The Investment Manager of the CC High Income Bond Funds – EUR and USD has the duty to ensure that the underlying investments of the funds are well diversified. According to the prospectus, the investment manager has to abide by a number of investment restrictions to safeguard the value of the assets

• Minimum Credit Rating CCC+ (or equivalent)
• Up to 10% in Non-Rated Bonds
• Average Credit Quality of B- (or equivalent)
• Emerging Market Issuers as per MSCI Emerging and Frontier
• Up to 15% in Emerging Market Equities
• Use of FDIs for hedging purposes only
• No limit on exposure to CIS
• Up to 30% in Non Emerging Market Issuers

April 2023

Introduction

Economic data released in April confirmed China’s reopening-driven rebound is progressing notably well with services leading the recovery. Indeed, the Chinese economy advanced 4.5% year-on-year in Q1 2023, accelerating from a 2.9% growth in Q4 and exceeding market estimates of 4%. Such growth, was the strongest pace of expansion since Q1 2022, amid efforts from Beijing to spur a post-pandemic recovery. Despite an encouraging macroeconomic backdrop, concerns surrounding geopolitical tensions overshadowed, hindering emerging market credit performance.

In fixed income markets, bond yields remained largely unchanged. Emerging market corporate bonds headed lower, registering a negative performance for the month; c. -0.31%.

Market environment and performance

From the data front in the emerging market world, leading indicators, particularly PMI data in China continued to portray a more benevolent economic scenario as the abrupt shift on strict coronavirus policies filtered through. In April, China’s composite PMI reading, pointed to a 3-month low, still an expansion (53.6 v 54.5 in March). Manufacturing fell (49.5 v 50.0 in March), the first contraction in factory activity since January amid an ongoing property market downturn and fears of a global slowdown.  Services, boosted by an increase in new orders and foreign sales, declined, yet remained in expansionary territory (56.4 v 57.8 in March).

Latin America’s largest economy; Brazil, private sector business activity edged marginally higher (51.8 v 50.7 in March) – a second successive expansion in business activity, aided by services (54.5 v 51.8 in March) which was the primary driver of growth. Manufacturing fell (44.3 v 47.0 in March), marking the sixth consecutive period of contraction in Brazilian factory activity. Meanwhile, India too registered an expansion in its business activity, spurred by quicker expansions at goods producers and service providers. New orders rose the most in almost 13 years, reflecting faster increases in new business, both the manufacturing and service sectors. Meanwhile, job creation across the private sector remained mild, with the rates of growth broadly similar at manufacturing firms and their services counterparts.

Price pressures in EM markets have generally continued to show signs of easing. In Brazil, annual inflation eased to 4.65% in March, the lowest since January 2021, in line with market estimates, and the first time in over two years were the data point came in within the central bank’s 1.75-4.75% target range. Similarly, Mexico saw price pressures declining to 6.85%, the lowest since end of 2021 following a fall in energy prices, food, non-alcoholic beverages, and transportation.

Fund performance

In the month of April, the CC Emerging Market Bond Fund realized a gain of 1.03%. Throughout the month, the Manager increased its exposure to sovereign bonds, namely through the Republic of Colombia and US short-term treasuries.

Market and investment outlook

Optimism in China; a result of the moves taken by Xi Jinping’s regime to alleviate the economy through easing of strict coronavirus restrictions imposed, have at the start of the year proved benevolent, leading to an encouraging macroeconomic backdrop. Such backdrop was however overshadowed as geopolitical tensions, notably between US and China, resurfaced and lack of clarity on the government’s plans to support economic growth, remain unclear. In most LatAm countries, headline inflation continued to decelerate, but core inflation still remains high and sticky, pushing central banks to stay hawkish.

In terms of bond picking, the Manager will continue to monitor the market environment and take opportunities in attractive credit stories which should continue to add value to the portfolio. The widening observed in corporate credit spreads over the previous weeks have indeed posed opportunities, presenting attractive entry points to yield capital appreciation.