Low volatility, competing macro data marked a benign April

30 April 2019

Ani Deshmukh

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

Market Commentary

Markets in April remained sidelined, with volatility continuing to stay low despite some notable moves in macro data across asset classes. U.S. and China macro numbers came in better than expected, with a 1Q GDP of 3.2% for the former, versus 6.4% for the latter. However, these were balanced out by weaker than expected data from the Eurozone. The EM space had a weaker month compared to developed peers due to increased political and economic headwinds. A marked weakness in Argentina due to uncertainty over their October presidential elections and increasing inflation resulted in the Peso and credit spreads widening materially, which had a modest spillover to the rest of EM. Sri Lanka (multiple terror attacks) and Pakistan (uncertainty about their next IMF bailout) were also impacted. The most notable headwind to EM remained a persistently strong US Dollar. Finally, U.S. treasuries ended the month about 5bps wider, as the Fed kept their wait-and-see outlook intact. Overall, Asian credit had a quiet month with lower issuance and spreads largely unchanged as we await further evidence on the macro front to give direction.


Portfolio Commentary

The global outlook remains colored by two data sets: the strong U.S. economy and a weakening exports market for the rest of the world. China growth, as always, remains critical, the upcoming weeks will have several key directional events for Asia. The US-China trade war discussions were expected to reach a conclusion this month and any easing of tariffs, should be a near-term positive. However, renewed differences over the details could derail this discussion and result in a risk-off environment. India elections are also expected to result in the BJP getting re-elected, which could be a positive for reforms and risk assets. Onshore China rates have widened in the last few weeks due to liquidity pressures, while India onshore rates also remain sticky. We expect both Central Banks to have an easing bias in 2H’19, resulting in lower onshore rates. While global growth looks unlikely to pick up materially this year, the absence of significant rate volatility and easing liquidity conditions should support higher-quality borrowers. The wild card as always remains trade and geopolitical pressures, which could see some short-term gyrations in risk sentiment in EM.

Our Fund’s duration at 4 years is largely in line with our positioning stance from 1Q – we remain more comfortable with mid-duration paper (5-10 years) given our largely benign view on rates, and the Fund would look to add longer duration bonds if we see a rates selloff. Credit risks in Asia are more balanced at current spread levels, and we expect credit differentiation to feature again as we go into mid-year.

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