Emerging Market Bond Fund Euro Distributor

The Fund aims to maximise the total level of return for investors through investment primarily, in a well-diversified portfolio of fixed-income investments.

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

March 2021

Emerging markets (EM) have had a difficult few weeks, after a strong start to the year, over concerns regarding policy tightening. While central banks in developed markets are pledging to keep rates low for a long time, some EM central banks are already hiking. These hikes are being driven by food prices, efforts to anchor inflation expectations and different policy reaction functions.

Local conditions vary across EM including inflation pressures, real interest rate levels and fiscal policy, not to mention external accounts and associated FX moves. Case in point is Turkey, whose currency plunged after President Erdogan removed the chair of the Central Bank following an announcement of an interest rate hike. Increasing levels of inflation were reported in Brazil and Russia.

There has been some volatility in the Chinese property high yield sector, underperforming so far this year due to a repricing of tail risk. The resources driven emerging markets were aided by higher commodity prices which have also contributed to higher inflation expectations. Activity levels in Asia remain elevated, insofar as chip shortages were cited amongst several industries, leading to production issues.

From the data front in the emerging market world, China – the world’s second largest economy reported an increase in both the manufacturing and services sector. China’s March manufacturing PMI increased to 51.9 from 50.6 in February, beating market expectations of 51.0. This was aided by a sharp increase in industrial production of 35.1%. Services PMI increased to 54.3 from 51.5 in February.

From the Latin American region, the Brazilian president Bolsonaro remains under immense pressure due to the critical pandemic situation in the country. The country is reporting several thousand cases of fatalities every day, yet the President insists on a business as usual approach to the situation, drawing criticism from several stakeholders. 

Brazilian PMI data for March deteriorated, falling to 52.8 from a 58.4 level reported in February.  Momentum in retail sales continued to slow, increasing by 1.2% compared to a strong forecast of 6.0%, as consumer confidence was shaken by Covid induced restrictions.

From a technical perspective, emerging market debt is expected to keep pace with high yield credit in developed markets, as higher yielding debt remains an attractive avenue for those investors in search of a higher yield. The extremely accommodative liquidity situation is helping to maintain stability, despite the deep wounds inflicted on already fragile economies. This highlights the importance of the managers’ strategy of being selective.

In the month of March, the CC Emerging Market Bond Fund increased by 1.2 per cent. Throughout the month the Manager continued to seek pockets of value by looking into attractive credit stories, primarily within the base metals, transportation and real estate sectors.

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 accommodative stance.