Macro uncertainties persist, rates head lower

30 August 2019

Ani Deshmukh

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

Volatility spiked across asset classes in August, as the markets grappled with the impact of increasing tariffs between China and the U.S. as well as unexpected political uncertainty in Argentina and the UK. U.S. rates followed global rates lower, and the widely watched 2-10yr curve inverted. 10yr rates declined 51bps in the month, one of the steepest one-month rate rallies in the last decade. Macro moves in global rates and FX have been exacerbated by concerns on a global slowdown and a flight to quality, and risk assets weakened. In the Asian credit space, High Yield cash prices were lower by about 1 point, while IG spreads were ~30bps wider. The rally in USTs helped mask most of the spread moves, and as a result Asian credit outperformed equity.


Near-term outlook remains clouded by the risks of a global slowdown, while higher risks of a U.S. recession in 2020-21 are being factored in given the yield curve inversion. EM weakness, led by LatAm volatility, is also likely to continue. In Asia, the regional slowdown in growth, is manifesting gradually and we do not expect a sharp deterioration in business conditions or corporate earnings in the near-term. Asia credit is arguably a safer haven in this EM repricing, with most Asian bonds being owned by regional investors, thereby limiting the forced-selling contagion that may impact the rest of the EM space.

The Fund reduced duration to about 4 years as the rates rally exceeded our expectations. At current levels, there are about 65bps of rate cuts priced in until end-2019 which we consider excessive, and therefore we have taken the opportunity to modestly reduce duration. We remain underweight China compared to the benchmark (34%). We continue to focus on fundamentals, both macro as well as at the company level, and are intent on keeping the portfolio invested in high quality defensive names in the near term.

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