The strategy’s performance continued to recover during the last quarter. The strategy’s relative and absolute performances are now positive. Strong results in the banking sector, in particular the lower part of the capital structure (i.e. T2 and AT1 bonds) were a strong driver of the rebound.
We suspect that many investors have become accustomed to a seemingly synchronized world with relatively little currency volatility – in a sense over recent years we seem almost to have been back in the 1960s, a period during which moves in exchange rates were quite rare and there was essentially a single synchronized global economic cycle.
At the time of writing, Democrat presidential candidate Joe Biden leads the polls by 10 percentage points and will likely be elected President of The United States on 3 November 2020. The potential for a Democrat “Blue Wave” with control of both houses easing the passage of legislation also seems possible.
The third quarter of 2020 corresponded to a continued recovery of all emerging markets (EM) debt segments, albeit at a slower pace compared to the second quarter. The market’s positive momentum faded in July and August and a mild consolidation phase even occurred in September.
As China’s fixed income market continues to grow in depth and size, it has helped create interesting trends that are worth following. While some of these trends are not new, we do see finer developments within that could pique investor interest in realising additional alpha.
Coordinated fiscal and monetary stimulus is likely to support global demand and therefore reflation in the years ahead. We see this opening up broader growth opportunities, and ultimately better scope for portfolio diversification.
With the global outbreak of COVID-19 in the first half of 2020, the world was turned upside down. Under such circumstances, Japanese companies are now faced with new challenges to adapt to this “new normal”.
US Treasury (UST) yields traded in a narrow range during the month. Factors such as the second wave of COVID-19 infections in Europe, lingering volatility in US equities and continued lack of consensus on further fiscal support weighed on market sentiment.
October 2020 Second and third waves of the virus will also slow the recovery. But importantly, mortality rates have been lower, suggesting that the world continues to learn to live with the virus without requiring broad lockdowns.
We believe our active approach to credit investing allows us to better serve clients, as indiscriminate waves of downgrades following the turbulence that has rattled global financial markets this year presents us with compelling opportunities.