Fed’s flexibility welcomed by Asian credit market

13 February 2019

Ani Deshmukh

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

Market Commentary

January was characterized with a generalized risk-on mood in financial markets and in this context, Asia was no exception. This move was triggered by a dovish tone from the Fed’s Chairman who dismissed any belief in the sense that the monetary policy path is cast in stone. On top of that, the lack of noise around US-China trade talks and Chinese authorities support to the economy helped the region’s markets to hold up well.

Amid this context US 10yr Treasury yields stabilized and was at 2.63% at month-end, a level the market seems to be comfortable with. High yield credit in Asia was the major beneficiary in this environment, posting its best monthly return since 2012. Investment grade bonds also had a decent run by closing January just shy of 2%.   

Portfolio Commentary

 We continued to increase our duration and brought it to 3 years, which is the upper band of our near term expected range, as we believe a data dependent Fed will further stick to its gradual approach. We bought some higher-carry BB names as yields have become more appealing with stabilizing credit fundamentals. Indonesian Quasi-Sovereign space, where we see opportunities and bought some positions to bring the exposure in line with the benchmark, appears interesting versus government bonds and other Asian economies with the same macroeconomic configuration. We significantly reduced our South Korean exposure as the current level of valuation leaves little room for further spread compression.

The recent developments are encouraging, with near-term resilience expected in some countries. The election cycle in Asia is also an element we consider in our asset allocation.  We adopt a selective country and sector exposure approach, at the same time recognizing that a worse-than-expected Chinese slowdown or disruptions in global trade would pose risks to the entire region, and we do take this element into consideration in our bond selection process.

 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