Emerging Market Bond Fund Euro Accumulator

The objective of the Sub-Fund is to endeavour to maximise the total level of return for investors through investment primarily, in a well-diversified portfolio of debt securities and other fixed-income or interest bearing securities.

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

May 2020

Risk assets have continued to rally throughout the month of May as the gradual re-opening of economies increased optimism for a V-shaped economic recovery from the virus induced turmoil. The strength of the asset price recovery continues to be buoyed by ongoing strong government policy and central bank interventions. That said, in our view, the propagation of the shock to financial markets due to the virus outbreak remains directly linked to the evolution of the virus and the dynamics of the containment measures.

Credit markets have seen healthier liquidity in secondary markets, as continued central bank support measures played their part coupled with stronger participation from market participants. The primary market increased pace throughout the month of May following a standstill month in March, as many corporates were comforted by central banks intervention which kept volatility low, while appetite in the primary re-emerged.

Emerging markets were also conditioned by the oil price collapse earlier in March, partly caused by the ongoing drop in demand caused by the economic contraction, in addition to supply cut disruptions brought about by OPEC members From the data front in the emerging market world, China reported mixed results in its leading indicators, as business activity attempts to normalise, following widespread company shutdowns and travel restrictions in February. China’s Manufacturing PMI declined to 50.6 in May from April’s 50.8.

From Latin America, published economic data in Brazil marked a slight improvement in activity. Notably, Manufacturing PMIs increased to 38.3 from 36.0 in April and similarly increasing to 27.6 from 27.4 for services, highlighting a slight increase in activity, however not to the extent of other continents as the country continues to struggle with the spread of the virus. Together with other countries such as Mexico, Brazil continue to report increasing daily deaths, therefore are considered further back in the cycle, behind their peak.

In the month of May, the CC EMBF continued its resurgence, up 3.86% as credit spreads tightened in line with the wider risk-on approach by market participants. Going forward, the Manager will continue to assess the EM space scenario even on the basis of further monetary policy actions taken by Central Banks, which seem to follow the Fed’s easing stance, primarily by cutting interest rates.