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

December 2019

With the December 15th deadline looming large, December, as expected, proved to be an eventful month on the political front. As anticipated, tensions between the U.S. and China significantly eased, when the two nations agreed a phase-one deal to ratchet down the trade war, this boosting confidence and lessening uncertainty across markets. The news came after 20 months of on-and-off negotiations and tariff escalations that unsettled markets and damped global economic growth.

From the data front in the emerging market world, China reported a drop in its leading indicators, specifically in the Manufacturing and the Services PMIs. China’s Manufacturing PMI fell to 51.5 in December from 51.8 in the previous month, amid a marginal rise in exports. Similarly, Services PMI fell to 52.5 from a seven-month high of 53.5. Albeit a slight drop in the growth rates envisaged in the previous month, purchasing activity rose for the sixth month in a row.

Meanwhile, in December, in a bid to further boost economic growth, and thus recover the country’s sluggish economy, Brazil’s Central Bank cut its Selic rate, for a fourth straight meeting, bringing borrowing costs to its lowest on record, at 4.5 percent, also leaving the door open for additional easing. Following Brazil’s Central Bank decision, S&P Global Ratings revised Brazil’s outlook to positive from stable, boosting sentiment and placing Latin America’s largest economy a step closer to its first sovereign credit rating upgrade since 2011.

In the month of December, EM credit posted a 1.7 percent gain as investors continued to seek higher returns through EM allocations following the announcement that a phase 1 deal would be signed in early 2020. The CC EMBF fund gained 1.5 percent in the month following the positive moves experienced in its underlying holdings, namely Brazilian credit stories that upheld their upward trend in prices. A trend, which kicked-off in the late 2018 following general elections won by Bolsanaro, which promised reforms and which indeed are being implemented. In the month, the Manager increased its exposure to the Chinese property market, specifically in Logan properties, which continues its improving credit trend boosted by its capability to register higher than expected sales.

EM HY credit should continue to perform well in 2020, as central banks within the EM region remain accommodative, while the ability of fiscal expansion within the EM region should be also supportive. The Manager will continue to seek pockets of value by also possibly, exploring the Frontier market region, with some interesting stories on its radar.