Commentaries

Broad Strength

14 September 2021

Ashwin Aiyappan, Nevin Nie

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

Broad Strength

After a weak close to the previous month in spreads/prices in Asia credit, August saw a strong broad-based recovery, with higher yields bringing in spread buyers and high yield rebounding off the weakness in to month-end. Many may have envisioned outflows given the poor performance of Asia credit in July but that likely didn’t materialise and certainly helped further fuel the rally. Global risk assets buoyancy certainly also played a significant part in the Asian credit tone. The main outperformer in Asia credit was the China Huarong complex with bonds up as much as 30 points in August alone. Meanwhile, Evergrande bonds languished at distressed levels.         

With regards to performance (JACI), Asian Investment Grade spreads tightened by 14 bps this month, while High Yield spreads tightened by 71 bps. The spread of Asia HY over IG has compressed by 57 bps to close at around 618 bps. At month end, Asia High Yield return sits at -0.38% whilst Investment Grade is at +0.8%. The benchmark JACIs YTD return was +0.54%.

Outlook and portfolio performance

On spread levels, the relative value continues to remain in Asia credit both in IG and HY but COVID developments and trajectory in the China property sector, specifically weaker entities, needs to be monitored. Again, similar to last month, developments in China policy both in the technology and property sector will drive opportunities. We still remain cautious due to the policy uncertainty and conversely, COVID developments.

The RAM (Lux) Tactical Funds II - Asia Bond Total Return Fund (Class PI USD) fund was up 0.54% in the month of August, with gains broadly distributed. The fund remains well diversified. Positioning remains cautious with a net duration of 3.5 years and 5.5% cash levels, and we would look to rotate out of cash into new issues and China HY at the appropriate time.

 

Source: Nexus Investment Advisors Limited.