Stand: 30.06.2024
Performance contributions of note: A flat return for May for the EUR investor, a negative return in USD terms. bp bp bp bp n South Africa, India, and Malaysia have been the top performers from an absolute perspective, Brazil, Chile, and Mexico the worst performers. n From a relative perspective, our low positioning in Colombia and South Korea, our exposure in hard currency USD frontier markets, and our positioning in India and Uganda have been positive contributors.Our long duration stance in Brazil, our high exposure to Uruguay, our low positioning in South Africa and South Korea, and our absence from China (excluded) have been negative contributors. n STRATEGY & OUTLOOK A rather difficult first half of the year for fixed income markets. Investors in Eurozone bonds for instance, witnessed a -1.9% return. Emerging markets, helped by high carry and global diversification, saw a return close to zero. Negative currency performance (-1.5%) and negative duration performance (-2.9%) matched the positive carry (4.4%) of the asset class. Sub-Saharan Africa performed very well, with South Africa in the lead following the formation of a Government of National Unity. African countries that restructured debt in the recent past, like Zambia and Ghana, have recovered nicely. Asias performance was flat, except for India and Pakistan. Central Europe was flat as well. Latin America performed poorly, with all the losses concentrated in the big four: Brazil, Mexico, Colombia and Chile. Uruguay once again was outstanding, as well as some of the smaller Central American countries like Costa Rica and the Dominican Republic. In Mexico, the election outcome (a landslide victory for Morena) triggered a sell-off based on worries that constitutional reforms could endanger Mexico s strong institutional framework. Its too soon to draw conclusions for the long term, but we will closely follow up. In Brazil, the tug of war between Lula da Silva and Campos Neto, governor of the Central Bank, resulted in higher bond yields and a 16% YTD depreciation of the Real. Brazilian bonds and assets are extremely cheap. There is no other emerging market that pays such a high real interest rate. The reason for such high rates does not lie with the central bank, but rather with politicians. Brazil needs to control its fiscal budget. With nominal GDP growth expected to be around 5.50-6.00% for the coming years (Banco Central do Brasil estimates) and interest charges as % of GDP now above 7%, debt levels are not under control. Brazil is a case where fiscal austerity will lead to higher growth not lower growth - because it will allow for lower rates. Brazil will update its budget figures in the second half of July. Among transactions of note: We bought Peru green bonds. n We sold Malaysia, Indonesia, South Africa, Uganda, and Colombia.