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

April 2020

Risk assets have rallied throughout the month of April as the fear and panic associated with the outbreak of the COVID-19 virus, which lead to black-swan events in March were eased by government policy interventions. In our view, the propagation of the shock to financial markets due to the virus outbreak is directly linked to the evolution of the virus and the duration of the containment measures. 

Indeed the swift actions taken primarily by Federal Reserve (Fed), emerged is crucial in calming waters across the credit space. Despite that initially markets were not impressed by actions taken by major central banks, the decision taken by the Fed on the 9th of April, in which it expanded its list of eligible bonds, was a clear signal that monetary politicians will do whatever it takes. The move eased both market and corporate liquidity tensions. In fact, following the announcement we’ve saw healthier liquidity in secondary markets, while the primary market re-opened following a standstill month in March.

Emerging markets were also conditioned by the oil price collapse earlier in the month, partly caused by the ongoing drop in demand caused by the economic contraction. The oil price crash highlighted the steep imbalance currently present in consumer and industrial markets, with plunging demand and surging demand for oil storage extenuating the dislocation in the marketplace, and dragging down other risk assets. To this end EM countries sensitive to commodity moves were impacted negative, despite credit markets within the region have managed to gather some pace in line with their U.S. counterparts. 

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 49.4 in April from March’s 50.1, 

From Latin America, published economic data in Brazil marked a significant deterioration in activity. Notably, Manufacturing PMIs dropped to 36.0 from 48.4 in March and 27.4 from 34.5 for services, clearly highlighting the abrupt halt in the Brazilian economy. In addition , in the largest latam economy, Brazil, political instability re-emerged as Bolsanaro was faced with the resignation of justice minister which accused him of meddling in justice issues. This triggered noticeable moves across the Brazilian sovereign curve and other corporate names.  

In the month of April, the CC EMBF  re-gained 3.61% following a torrid March as credit spreads tightened in line with measures put forward by the Fed. 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.