The Fund ended the month with a stable performance, slightly ahead of its reference indicator.
The main catalysts were external debt, especially Pemex, Ivory Coast and Ukraine.
The impact of our currency component was neutral. Whereas the US dollar and Brazilian real had a negative effect, our strategy of buying the Chilean peso and selling the Chinese yuan worked in our favour.
At a local bond level, our long positioning on Chinese and Mexican debt has a positive influence.
We raised the Fund’s modified duration, which exceeded 400 basis points at month-end.
For local debt, we still prefer countries like Mexico and Brazil where real short-term interest rates remain extremely high.
However, we took profits on our long Chinese positions.
At a currency level, the Fund remains long on the Brazilian real and Chilean peso. However, we further reduced our long stance on the US dollar.
The Fund continues to be long on emerging market debt denominated in hard currencies, especially within the EMEA region and Latin America.
Latin America | 39.5 % |
Eastern Europe | 23.9 % |
Africa | 19.9 % |
Europe | 6.0 % |
Middle East | 5.9 % |
Asia | 4.8 % |
Total % of bonds | 100.0 % |
Market environment
May brought the first signs of normalisation for the US economy and labour market, as well as a drop in retail sales.
Although inflation was slightly lower, Federal Reserve members remained cautious over the month.
In the Eurozone, on the other hand, signs of recovery kept coming with the publication of better GDP figures for the first quarter.
A split appeared on the fixed income market, with US yields falling and the US dollar weakening, but euro yields rising.
Emerging markets ended the month slightly lower in local currency, but higher in hard currency.
May was also notable for elections in a number of countries (India, South Africa and Mexico), which seem to have increased regional volatility.