Performance

Against the backdrop of a seasonally subdued trading activity, ongoing global trade wars and geopolitical tensions, volatility has gone up again, making global financial markets extremely sensitive to any, sometimes contradictory, news and developments. Mexico reached a trade agreement with the USA. The news was positive for Mexican market and risk appetite in general. However, investors’ hopes for a deal with China were dented by Mr. Trump saying, that he will not accept “one-sided” trade policy. The USA and China exchanged tariffs on USD 16 bn worth of goods, while Washington considered raising tariffs on USD 200 bn worth of Chinese imports. In Turkey, the national court rejected the appeal to release the American pastor Andrew Brunson. As a result, the US Government imposed large sanctions on Ankara. The Turkish lira weakened losing one third against the US dollar, while Moody’s announced a one-notch downgrade of Turkey’s sovereign rating to Ba3. Markets met with relief the news that Qatar agreed to provide Turkey with USD 15 bn in direct investments. But all these steps are hardly sufficient to tackle the crisis. Euro has also been under pressure, as many European banks are major creditors of Turkish companies. Moreover, investors continue the sell-off of riskier assets precipitating a drop in other EM currencies and financial markets. The theme of US sanctions, this time against Russia, continued in the second half of the month (21/08), when the US Treasury announced additional sanctions against three Russian companies, two Russian citizens and six vessels flying its flag because of cooperation with North Korea. At its scheduled meeting on 1 August, the Federal Open Market Committee (FOMC) of the US Federal Reserve voted unanimously to keep the key interest rate unchanged, quoting a strong growth of the national economy and low unemployment. Based on the Fed’s rhetoric to date, we expect two more rate hikes until the end of the year. The summer lull is coming to an end as the buyers are becoming more active, which means autumn might bring stabilization to the markets. As of the end of August the cash weight in the Fund is 1.4%, the average yield to maturity is 5.5% and average duration is 4.9 years. Given the low market activity and fully invested portfolio, we took no active steps this month. That said, we keep monitoring global financial markets on the lookout for new investment opportunities.