A strong start to 2020, but near-term headwinds persist

14 February 2020

Ani Deshmukh

RAM Active Investments RAM (Lux) Tactical Funds II - Asia Bond Total Return

Market Commentary

Asian credit markets were off to a strong start, with the positive sentiment from late-December’s political events spilling into the new year. Both IG and HY risk saw strong demand as well as participation in new issues which were at a record $40bn, making it one of the busiest in the last five years despite an early Chinese New Year break. Accommodative monetary policy as well as expectations of normalizing trade providing a floor to growth in 2020 were the main drivers for the risk rally, which resulted in higher High Yield bond prices and IG spreads tighter. However, sentiment from late January was dominated by the increasing concerns over the outbreak of the Coronavirus which has resulted in city-wide lockdowns in several cities as well as an extension of the national CNY break until the 10th of February. The market impact was a sharp rally in risk-free assets which led to 10-yr US treasuries ending the month 35bps tighter at 1.51% helping support the spread credit markets in the region.


Portfolio Commentary

While the near-term growth in China is very likely to slow significantly, we also expect a coordinated and meaningful policy response from Beijing in the form of further easing as well as direct stimulus to revive growth again. The first measure was announced over the weekend with RMB1.3trn of liquidity injected into the domestic system.


The RAM Asia Bond Total Return Fund returned 1.41%, versus 1.37% for the index. We exited the month with 6% cash levels, and a duration of 4.4 years. We have reduced our exposure in Macau’s gaming names as the impact due to the disruption to travel would be meaningful for this sector in the near term. The portfolio currently is defensively positioned with 82% invested in Investment Grade vs 18% in High Yield, which is towards the lower end of our allocation spectrum to this asset class. As markets correct in February, we would be looking to deploy cash as well as tactically rotate into stronger names if they get oversold.

Nexus Investment Advisors Limited, subject to the supervision of the Securities and Futures Commission (SFC) in Hong Kong, has been appointed by the fund's management company as investment manager to RAM (Lux) Tactical Funds II - Asia Bond Total Return Fund.

*Sources : Nexus Investment Advisors Limited