Performance

The month of July launched on a positive note, after US and China announced their agreement to resume trade talks at the end-of-June G-20 summit. This was a sign of relief for the markets, although no further steps towards reaching a deal were undertaken during the month of July. Expectations of the upcoming rate cut by the Fed has provided support for the fixed income markets throughout the month, resulting in high inflows into emerging markets bond funds. As expected, the Fed announced a 25 bp rate cut following its meeting on 30-31 July, but disappointed market participants stating that this is not the beginning of a new easing cycle. Our fund added 1.0% this month. Oman (BB+) bonds were among the top performers this month. The government has recently reported an increase in total revenues by 14% year-on-year, while spending decreased by 4%. Following the report release, Fitch rating agency affirmed Oman’s sovereign debt BB+ rating with stable outlook. Bonds of pharma company Mylan (Baa3) have also performed very well following the announcement of the merger with Pfeizer’s (A1/AA-) off-patent drug division Upjohn. At the 18 July meeting, European Central Bank suggested they are preparing the ground for a rate cut, as well as new quantitative easing measures in September. The Eurozone is still showing no sign of recovery, as negative statistics keep coming. For example, the preliminary PMI for July in Germany showed a decline in manufacturing to the lowest level in three years. In Turkey, President Erdogan replaced the head of the central bank (6 July), which came to reconfirm investors’ worries about the independence of the institution. Shortly after (25 July), the new governor announced a 425 bp cut in its one-week repo rate, from 24% to 19.75%. Although investors were already expecting a shift towards monetary easing after the move, the cut exceeded by far the expectations. Nevertheless, Turkish bonds enjoyed high demand in July, continuing the positive trend that started in June. This month we fixed profits on some long-maturity positions and disposed of some low-credit rated bonds, with the cash holding increasing to 5.9% by the end of the month. We took part in euro-denominated 20-Year primary placement of the Kingdom of Saudi Arabia which was placed at 2.0% YTM. The fund closed the month with an average duration of 4.1 years and an average yield to maturity of 3.8%.