Performance

During the month of December, the US-China trade war remained the main factor driving the markets. The optimism regarding a trade resolution has increased over the course of the month, after the US government announced the indefinite suspension of the US tariffs on Chinese goods that were supposed to come into effect on 15 December. The fund added 1.0% this month, which brought the 2019 yearly performance to 14.8%. The last Fed and ECB meetings this year, on 11 and 12 December respectively, didn’t provide any surprise and both central banks left the rates unchanged. In addition, the Fed Chairman Jerome Powell expressed his optimism about the US economy. The dot plot, which presents interest rate projections by each of the FOMC members pointed to no rate cut for 2020 and one rate rise per year in 2021 and 2022. Markets disregarded the news on President Trump’s impeachment announced on Wednesday, 18 December, after a majority of Congress members voted in favor of two charges against the US President. However, the charge is yet to pass the senate trial in January, which is dominated by Republicans and thus very unlikely to get approved. The Conservative party won a majority of sits at the parliamentary elections in the UK, which boosted the expectations of an end to the Brexit deadlock and contributed thus to the pre-Christmas optimistic mood. The news on the US and China agreeing on a phase-one trade deal increased the overall risk appetite and accelerated the inflows into EM debt, which totaled $17.8 billion in December (according to the Institute of International Finance), thus driving the EM bond prices up. Turkish Central Bank has surprised again with a larger than expected rate cut of 200 bps announced on Thursday, 12 December. The Turkish Central Bank has provided significant monetary easing this year, bringing the benchmark interest rate down to 12% from 24% in the beginning of the year. However, the inflation rate has also been on a downward track. Argentine bonds have also risen this month, including those of the energy company YPF and agricultural giant Agro, which we hold in our fund portfolio. Investors turned more optimistic regarding the sovereign debt restructuring, as the newly appointed Economy minister Guzman has already started the negotiations with the IMF and other bondholders. The activity on the primary markets was reduced, in expectation of the forthcoming holidays. Our cash holding increased to 8.6%, due to several subscriptions into the fund during the month of December. We intend to invest it once the primary market revives in January. Our fund closed the year with an average duration of 4 years and an average yield-to-maturity of 3.2%.