Emerging Market Bond Fund USD 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

February 2020

With growth settling back to the roughly 2% pace prevailed during the decade-old economic expansion, fears of a global recession lessening, and the manufacturing cycle seemingly heading for a turnaround following a ‘phase one’ agreement between US and China, outlook for 2020 vis-à-vis economic growth seemed positive. Economic data had started to improve whilst yields started to portray the possibility of a broad economic recovery.

Albeit the initial uptick in January, treasury yields traded downwards, as investors; worried about the potential impact on global economic growth and corporate earnings, as a protectionist measure against economic downturn, shunned global equities, wiping out months of gains, and sought the relative safety of sovereigns. Subsequent to the increased demand for safer assets, and reflecting expectations of a possible rate cut, the U.S. 10-year Treasury Yield tumbled by 37.8 basis points, for the month of February and closed the month at 1.126 per cent.

Notably, due to the latter shift towards less risky assets, High Yield bond spreads over treasuries significantly widened, closing-off the month on a much weaker note.

From the data front in the emerging market world, China reported significant drops in its leading indicators, specifically in the Manufacturing and Services PMIs. China’s Manufacturing PMI plunged to 40.3 in February, the lowest level since the survey began in April 2004, and well below preliminary estimates of 45.7. With Chinese authorities imposing restrictions on movement and businesses extending Lunar New Year shutdowns, China’s output supply chain came to a standstill. New orders and employment fell at the steepest rates on record. Exports shrank sharply on the back of shipping restrictions and order cancellations.

Similarly, Services PMI plunged to a record low of 26.5 from 51.8 in the previous month, amid company closures and travel restrictions.

In an attempt to lower financing costs for companies and inject more liquidity into the financial markets, the People’s Bank of China lowered its benchmark 1-year Loan Prime Rate by 10 basis points to 4.05 per cent, and 10 basis points higher than market estimates.

From Latin America, published economic data further affirmed Brazil’s positive run. Notably, albeit slightly lower, business confidence in Brazil remained on a high at 64.80. Among sectors, business confidence weakened in manufacturing and construction, while strengthening in mining.

Meanwhile, Brazil reported a higher Manufacturing PMI for the month, at 52.3 when compared to that of January, standing at 51. The latter reading pointed towards sharpest expansion in factory activity in three months, as output rose amid strong demand, improved economic conditions and stock building initiatives.

In the month of February, the CC EMBF was down just below 2 percent following the remarkable movements seen due to the Covid-19 outbreak. In the month, the Manager continued to raise cash levels based on possibly further widening. The more resilient names were Turkcell, the Turkish telecommunications company, which maintained relatively stable levels on the back of positive operational numbers.