Diamond Capital Management (Switzerland) Ltd.

mid-April update on Asia HY and our Angsana Asia HY Bond Fund

In April, the Asian high yield market has rebounded together with global high yield and equities, boosted by positive sentiment due to central bank policies globally and by a near return to normality in China’s economy.
In China, power consumption rose by 1.5% y/y in the first 10 days of April, after a 4.2% y/y fall in March and a 10.1% y/y drop in February. Bank lending reached an all-time high of more than US$1 trillion in the first three months of 2020, while rail freight volumes fell by 0.44% y/y in March. 98% of large companies have resumed operations, while small businesses are running at about 82.6% capacity in mid-April (compared to 76.8% at end March). There was already significant work resumption in China in March, where industrial production was down only 1.1% y/y, much improved from -25.9% in Feb. Industrial enterprises are almost back to full operation, with 97.2% of scaled industrial enterprises having resumed operations on 9 Apr, which is up +18.9ppts from end Feb. The above economic data indicates that China’s economy has gradually returned to normality.
With regards to the China property sector, the year-to-date contracted sales of over 30 major developers as of end Mar 2020 declined 9% y/y for the month of Mar 2020, while average new home prices across 70 major cities in China are up +5.2% y/y in Mar 2020, reflecting that the residential property market is holding up relatively well considering the circumstances due to Covid-19. March’s real estate investment (REI) rebounded to a 1.2% y/y growth (vs -16.3% in Feb), in addition, as construction and land sales started to resume in a large scale since late March, REI is expected to recover further in Apr/May. Nationally, about 95% of property sales offices and construction sites have resumed operations, and even those in Hubei/Wuhan have started to re-open from the second week of April, as such, continued recovery in Apr/May is expected to follow.
Given that Angsana was already defensively positioned coming into 2020 both in terms of duration and also by being biased towards higher quality issuers, we expect the Fund to continue to weather market volatility relatively well. We believe any excessive correction could potentially present an opportunity for the Fund to deploy cash selectively into high quality issuers which might be negatively impacted by a broad sell-off. Given the severity of the Covid outbreak globally, we’ll continue to invest with a healthy margin of safety.
A link to Citywire selector stating we are the second best performing Asia Credit hard currency bond fund (IG and HY) over a period of 5 years.