Emerging Market Bond Fund Accumulator - Euro

The Fund aims to maximise the total level of return through investment, in a diversified portfolio of Emerging Market 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 Emerging Market 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-Emerging Market issuers.

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

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 2025

Introduction

Emerging market (EM) credit delivered mixed performance in April. Corporate credit partially retraced the strong gains achieved in Q1 2025, while sovereign debt, after a volatile start to the month, reversed earlier gains to close broadly flat. The recent weakness in EM credit was primarily driven by a renewed protectionist rhetoric surrounding U.S. trade policy.

Market sentiment deteriorated following former President Trump’s announcement of sweeping new tariffs on April 2, coined as “Liberation Day,” which amplified fears of a broader trade conflict. The swathe of tariffs, more punitive than markets had initially anticipated, triggered significant volatility across assets, with EM credit, typically viewed as a riskier category, at the centre of the selloff. Sentiment later stabilized after the tariffs were suspended for 90 days, signalling a potential window for negotiations.

EM countries, particularly in Asia and Africa, were clearly in the crosshairs, while those in Latin America were less directly affected. China bore the brunt of the announcement, with new levies imposed on key strategic sectors including electric vehicles, green energy technologies, semiconductors, and steel industries integral to its industrial policy and export-led growth model. These actions were part of a broader protectionist pivot by the U.S., framed by Trump as an effort to safeguard domestic industry and reduce reliance on Chinese imports.

Despite the temporary reprieve, tariff-related uncertainty remains a significant headwind. The lack of clarity around U.S. trade policy continues to weigh on investor sentiment.  

During the month, EM corporate bonds declined by 0.53% as spreads widened, while EM sovereign bonds held relatively steady, supported in part by a pullback in U.S. Treasury yields.

Market environment and performance

China responded to President Trump’s April 2 tariff announcement with its own targeted levies on U.S. goods, focusing on agricultural and industrial sectors. While the initial reaction was measured (aiming to avoid actions that could further undermine domestic consumption), the scope of retaliation broadened over the course of the month, signalling Beijing’s readiness to escalate if needed. At the same time, Chinese authorities reaffirmed support for impacted domestic industries and reiterated their commitment to greater economic self-reliance.

From a policy perspective, the People’s Bank of China (PBoC) left its key lending rates unchanged for the sixth consecutive month in April, aligning with market expectations as the central bank waits to assess the evolving impact of U.S. trade disputes before introducing further stimulus.

In economic numbers, China’s General Composite PMI dropped to 51.1 in April 2025 from 51.8 in the previous month, marking the lowest reading since January amid slower output growth in both the manufacturing and services sectors. Nevertheless, it was the 18th successive month of growth in private sector activity. New orders rose at the slowest pace in seven months, weighed down by a renewed contraction in foreign sales. Meanwhile, China’s consumer prices dropped by 0.1% YoY in March 2025, missing market estimates of a 0.1% increase and marking the second consecutive month of drop, as the ongoing trade dispute with the U.S. threatens to exert further downward pressure on prices.

Latin America’s economic landscape continues to present a mixed picture. Earlier concerns about resurgent inflation were alleviated by previous month’s readings, which suggested a potential disinflationary trend in some economies. However, more recent data has reignited these worries. Notably, Brazil’s inflation rate rose to 5.48% from 5.06%, surpassing market forecasts and reaching its highest level since September 2023. Mexico and Chile also saw increases, with headline inflation rising to 3.8% and 4.9%, respectively. In Asia, India – on the contrary – saw its fifth consecutive slowdown, reaching the lowest inflation rate since August 2019, supporting the case for easier monetary conditions. In response, the Reserve Bank of India (RBI) cut its key repo rate by 25bps to 6% at its April meeting, marking back-to-back cuts of the same magnitude and aligning with market expectations.

Fund performance

The CC Emerging Market Bond Fund recorded a return of -0.25% in April, broadly in line with the wider performance of the EM corporate credit sector.

In response to ongoing market volatility and expectations of a prolonged period of elevated Federal Reserve policy rates, the portfolio manager continued to actively manage risk and yield. After reducing exposure to tariff-sensitive issuers, increasing allocations to income-generating securities, and mitigating interest rate duration in the previous month, the manager largely maintained the portfolio’s current allocation in April.

Market and investment outlook

Looking ahead, fixed income markets are likely to remain sensitive to the ongoing impact of tariff developments. The contraction in U.S. Q1 GDP, driven largely by a pre-emptive surge in imports ahead of anticipated price hikes, appears to reflect temporary distortions rather than a broader economic slowdown. However, the longer-term inflationary effects of elevated input costs and potential supply chain disruptions could complicate the Federal Reserve’s policy outlook. If inflation remains sticky, the Fed may be compelled to delay or scale back the pace of rate cuts currently priced in by markets. Conversely, signs of weakening demand and slowing growth could strengthen the case for eventual policy easing. A dovish Fed stance would likely reinforce recent U.S. dollar depreciation – a trend that has persisted in recent weeks – which could offer relief to emerging market economies by easing external debt burdens and improving capital flows.

For the CC Emerging Market Bond Fund, the portfolio manager will maintain a dynamic approach, actively assessing the evolving market landscape to capitalize on attractive credit opportunities. Consistent with recent strategies, portfolio adjustments will be made to align with prevailing yield conditions and optimize duration, as deemed prudent. Furthermore, the manager will vigilantly monitor the constantly evolving geopolitical tensions, particularly the potential for escalating tensions, which continue to present a source of market uncertainty.