Diamond Capital Management (Switzerland) Ltd.

Angsana Asia HY Bond Fund - May 2019 update - and article on Asia HY's increasing investor base

With our monthly update I thought this short article on Asia HY and its increasing investor base could interest you as well.

  • The Angsana Bond Fund (USD Class AA) returned +0.59% in May bringing the YTD performance to +6.69 % (as of May, 31st).
  • The Fund Portfolio’s YTM is 8.44% and the duration is 1.49 years.

Market comment:

The Fund performed well despite the escalation of the US-China trade war in May, due to the Fund’s relatively defensive positioning.
The US recently increased the tariffs on $200Bn worth of Chinese exports from 10% to 25%, effective 1st June. To mitigate the negative effects of the escalation of the trade war, we expect China to roll out further easing measures, including tax cuts, cutting benchmark interest rates (mainly targeting the private sector and SMEs that are nowadays generating a large portion of job growth in China), targeted fiscal stimulus, and scaling back housing-market tightening measures, while still pursuing its deleveraging drive in overcapacity sectors.
We do not expect China to put too much focus on currency depreciation, although we anticipate a gradual depreciation of the RMB could happen to make its exports more competitive post any tariff hikes. Also note that USD debt comprise a relatively small portion of corporate capital structures for most Chinese companies, while in the case of Indonesia corporates, many companies (particularly property developers) have already hedged their USD borrowings.
Should the trade war escalate to the worst case scenario (i.e. a further 25% tariff on US’ remaining imports from China, valued at USD 300bn), we estimate it could lead to a slowdown of China’s GDP growth rate to around 6%. Although this is a meaningful deceleration, note that a 6% GDP growth rate is still respectable and we expect default rates to remain manageable.
Given the recent turn of events regarding the trade war, we expect global growth to slow down from here (unless the US and China come to a compromised agreement soon). In light of that, we believe that the Fund is well positioned for any potential market volatility ahead due to our preference for higher quality credits and shorter duration prior to the recent developments. Again, we expect default rates to remain very manageable, as credit fundamentals remain sound and the majority of near-term debt maturities have been refinanced during the first 4 months of 2019 (when market conditions were favourable).
Feel free to reach out should you have any questions.
Alexandra Ammann|Head Distribution Switzerland
Tel: +41 22 731 7530|Fax: +41 22 738 7533
Rue Guillaume-Tell 10|1211 Geneva 1|Switzerland
Email : alexandra@diamondcapital.ch