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

November 2020

In emerging markets (EM), China’s recovery has continued to positively surprise as the latest Manufacturing PMI came in above expectations, being the highest print since September 2017. Nevertheless, a succession of at least partly state owned companies’ defaults has rattled China’s $15 trillion bond market and is raising concerns about the country’s financial health.

China is an important part of EM growth dynamics. The world’s second-largest economy is leading the global restart in activity, with its growth already at, or very close to, its pre-Covid trend. This bodes well for the rest of the EM world. Yet EM economies are also susceptible to the policy direction of China. Throughout the month of November Asia Pacific nations including China, Japan and South Korea signed the world’s largest regional free-trade agreement, representing nearly a third of the world’s population and gross domestic product.

EM assets have underperformed their developed market (DM) peers for most of 2020, and have been playing catch-up in recent weeks. A string of positive news reports on Covid vaccines boosted confidence in an accelerated restart during the course of 2021, setting up a positive overall backdrop for risk assets. Encouraging early results on the effectiveness of a Covid-19 vaccine that may offer lower costs and easier distribution bode particularly well for the EM world.

From the data front in the emerging market world, China reported stronger results in its leading indicators, as business activity normalises further, following widespread company shutdowns and travel restrictions earlier in the year. China’s Manufacturing PMIs bounced up to 52.1 in November from October’s 51.4. The latest GDP growth reading stands at 4.9% for the third quarter of 2020.

From the Latin America region, economic data in Brazil remained encouraging, with manufacturing PMIs reporting at 64.0 from 66.7 in October and similarly services remaining in growth territory at 50.9.

Most EM assets have now delivered positive year-to-date returns after the recent rally. EM local-currency debt has lagged the market recovery in U.S. dollar terms, dragged down by heavy currency depreciation in many emerging markets. From a technical perspective, EM debt is expected to keep pace with high yield credit in developed markets, as higher yielding debt looks attractive to investors in search of income.

In the month of October, the CC EMBF increased by 3.57% on positive vaccine news and presidential election news. 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.