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Analysis of the Credit Suisse Asia Corporate Bond Fund
- 1. Assessment of the World and Chinese Economy CS (Lux) Asia Corporate Bond Fund 22 April 2016
- 2. The Team 2 DoraAqdas Ahmed Emmy Nathan Parul
- 3. 3 Agenda Prospects for the World Economy Chinese Economy – An overview CS (Lux) Asia Corporate Bond Fund 1 2 3 4 Upcoming Challenges
- 5. Reduced volatility in capital flows and exchange rates expected Bottoming out of the commodity price decline Reduced macroeconomic uncertainties, stimulating growth Developing countries projected growth: 4.3% in 2016 and 4.8% in 2017 World economy projected to grow by 2.9% in 2016 and 3.2% in 2017 Less restrictive fiscal monetary policy stance worldwide Easing of downward pressures on commodity prices Developed economies expected to contribute more to global growth Weak economic performance in large developing economies
- 6. Challenges for global growth: Persistent macroeconomic uncertainties and volatility Low commodity prices and declining trade flows Continued disconnect between finance and real sector activities Inflation remains benign Persistent output gaps Declining commodity prices & weak aggregate demand Significant currency depreciations offsetting the disinflationary pressures
- 8. 8 Monetary Policy Stock Market Crash Housing Market Boom GDP Growth slowdown
- 9. 9 GDP Growth slowdown 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 From double digit to single digit Economic Transition
- 10. 0 1000 2000 3000 4000 5000 6000 2014 2014 2014 2014 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2016 2016 2016 Stock Market Crash Banning of the short sell further dampen margin trading CSI index double since late 2014 Daily trading limit generates panic Following Black Monday 30% of the index wiped out Failed circuit breaker
- 11. Monetary Policy New set of tools: Midterm Lending Facility and reverse repurchase Easing Monetary policy Symmetrical rate adjustment to asymmetrical Divergence of policy
- 12. Housing Market Boom 1st and 2nd Tier city housing price spiked since second half of 2015 Asset safe haven and secure collateral
- 13. CS (Lux) Asia Corporate Bond Fund Overview & Performance Analysis
- 14. CS (Lux) Asia Corporate Bond Fund 14 Part of CS Investment Funds 13 Total Net Assests of $ 802.23M Segregated Assets and Liabilities Aiming to outperform the return of the Benchmark (JPM Asia Credit Index ex-Sovereign 1-10Y) Dominated in USD Credit rating of at least CCC (S&P) Fixed-income securities Issuers: Mainly private, majority of their business activities in Asia Trades on a daily basis and makes regular distributions Launched Sep 2012
- 15. 15 Monetary Policy Stock Market Crash Housing Market Boom GDP Growth slowdown
- 16. 16 GDP Growth slowdown Upward slope Outperforming the Benchmark
- 17. 17 Stock Market Crash Instable market situation Yield curve is flattening Shrinking difference between 10y and 2y Treasury yields Risk-averse Investors Mid-term investments
- 18. 18 Stock Market Crash Reaction to stock market crash Concentration of Wealth and increasing Urbanization in 1st and 2nd Tier cities offer the underlying security to Real Estate market High exposure to Real Estate
- 19. 19 Housing Market Boom Chinese Government is promoting property market Banks have identified the higher demand for “safe assets” and offer more financial liquidity Banking industry is flourishing Second biggest holding
- 20. 20 Monetary Policy 4 4.2 4.4 4.6 4.8 5 5.2 5.4 5.6 China Interest Rate Low interest rate environment AAA securities offer low yield Investors look for BBB-Bonds to maximize return but still investment grade High proportion of selected BBB- Bonds generate α while their short maturity hedges their risk
- 21. Top 10 Holdings 21 Tuspark Ownes and manages the land and facilities of Tsinghua university Science Park (45000 Students) Huarong Finance II One of the largest state owned asset management company backed by treasury department ICBC The world largest bank by assets, state owned enterprise China Life Insurance The only life insurance company in China with a national operating license, market share 45% Shimao Property No.7 largest property developer by market share. Develops high quality estate projects in dynamic cities with potential high economic growth across China
- 22. Upcoming challenges Future uncertainties in GDP Successful reform to a consumption-driven economy The divergence of the policies overseas may put pressure on the currency's value Affect the direction of the capital flows 22
- 23. Leadership 23 The expertise and ability to understand and take in & The agility to course-correct and react to changes
- 24. Q & A Thank you for your attention
Editor's Notes
- 1
- Our fund Has been Launched 3,5 years ago Part of the Umbrella fund CS Investment Funds 13 But our assets and liabilities are Segregated, which means that we will not be liable with our assets for liabilities of another subfund Our main goal is to outperform the return of the benchmark and gerenate alpha to our investors We invest mainly in fixed-income securities dominated in USD Our issuers are private and have the majority of their business activities in Asia Last but not least, we trade on a daily basis and make regular distributions
- Now if we go back to this timeline, the first point was the remarkable gdp growth slowdown
- and despite the very volatile markets, We have been continuously generating above average returns to our investors, and alos outperforming the benchmark. For example in 2014 we have had a net performance of 8,3% outperforming the BM by 1.9%
- If we take the unstable market situation into consideration, we can see that the yield curve is flattening and the difference between the two-year and 10-year Treasury yields fell below 100 basis points for the first time in eight years Investors are becoming more risk averse and we can see a shift from long term to mid term investments, but still this can not be too short to still generate some yield. Mid term investments are a solution. And that is exactly the strategy that we follow in our fund. As you can see, we have a high concentration on 3-5 year bonds with an average remaining term to maturity of 5.32 years Financial services long term for safety (SOE) and Property short term for high return
- But not only this! As a reaction to the stock market crash, investors have been looking for “safer assets” and the Concentration of Wealth and increasing Urbanization in 1st and 2nd Tier Cities offer the underlying security to Real Estate market . And we can see here the property price jumps in lower tier cites. And here again, the 34.2 % of our our securities come from the real estate sector
- This leads us to the next point, the housing market. Government is promoting the property market and banks have identified the increasing demand for safe assets and started offering more financial liquidity. So banks are also profiting from this booming industry Here again we can see that securities from the banking sector contribute with 16.7% to our fund
- So What are implication of the monetary policy Low interest rate environment means that triple A securities offer pretty much nothing AND BBB bonds are the best way to compensate the low returns from the safer assets while still being investment grade. Here again we can see that a High proportion of selected BBB-Bonds generates α while the short maturity hedges their risk
- If we take a look at our top 10 holdings, we can see that they are either State owned enterprises like ICBC, the world largest bank by assets, or huge institutions like China life insurance with a market share of 45%. But still, they represent only 17,9% of our fund. This shows how well diversified we are and how balanced our strategy is.
- For the next years we can see a lot of uncertainty around the GDP with governments trying to successfully implement a reform to a consumption driven economy And we think also that the divergence of the policies overseas, may put pressure on the currency's value which will affect the direction of capital flows.
- But no challenge is too big We are leaders in the market and our understanding of leadership in this particular context is not only The expertise and ability to understand and take in what is happening around us but also the agility to course-correct and react to changes in the market And that’s why we actively manage our portfolio, we try to keep a balanced strategy and we are outperforming the benchmark