Commentaries

Market consolidation continues, even with uneven COVID19 reopenings

14 July 2020

Ani Deshmukh

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

Market consolidation continues, even with uneven COVID19 reopenings
The constructive risk theme in regional credit (and equity) markets in Asia continued into June, with progressively higher risk tolerance helping inflows into the region, and supporting valuations. The early June enthusiasm on a gradual reopening of COVID19 related restrictions in DM was temporarily stalled as cases surged again in these geographies, particularly in the US. However, hopes of a better-managed virus second wave as well as the ongoing liquidity and market support mechanisms implemented by the Central Banks has provided a reasonably strong floor for the markets, and credit spreads ended the month about 20bps tighter for Investment Grade and about 80bps tighter for High Yield. Against a fairly stable UST backdrop (with yields in the 0.65-0.8% range for the most part) this spread compression resulted in overall yields for Asian credit declining to 4.1% (blended) versus 4.6% in end-April. New issuance also picked up pace in Asia, with June being the second busiest month in the year with gross supply of US$36bn, with both IG and HY segments of the market now reopen. Better PMI numbers from China, Malaysia and Vietnam as well as gradually normalizing numbers from key export countries like Korea also supported the markets.


Fund performance and positioning

The RAM Asia Bond Total Return Fund (class PI-USD net of fee) was up 1.54%* ( in June, and is in positive territory now for the year as at end-June. The fund ended the month 96% invested, with a net duration of 3.95 years and a 16% allocation to High Yield versus 84% to Investment grade. We are gradually increasing HY exposure to about 20% in the fund as markets normalize and tail risk has reduced significantly, thus enhancing the portfolio’s running yield while keeping a balanced and diversified profile. We expect new issue activity to remain robust in July, ahead of the mid-year earnings blackout season in August. The upcoming US elections in fall as well as the increasing geopolitical issues (US-China, HK-China being the latest flashpoints) as well as a markedly weaker fundamental economic outlook for the next couple of quarters remains at odds versus the liquidity supported market rally, and we continue to remain cognizant of potential double-dip risks both due to valuations as well as political/virus-related concerns as stated above.

 

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