In November, in the global stock market an upward move formed in the second half of October kept prevailing, and as a result, the majority of global stock indexes concluded the month in positive territory.
The major topics of the month were a succeeding package of measures to stimulate national economies issued by the key Central Banks (The Bank of Japan, The National Bank of China) and ECB promises of launching these measures. Relying on these expectations, in spite of the fact that European macro- and micro-statistics still did not give any ground for optimism, European stock markets outperformed, recovering last month retention from the US market.
In the stock markets of emerging countries, things were not in a good way. Landslide of oil prices together with mutual nervousness among investors caused by continuous slide down of raw commodities prices brought strong pressure on the currencies of countries-exporters, as a result, in spite of the fact that the majority of global stock indexes showed growth at month-end, local currencies fell down and mutual stock index of emerging countries concluded this month in minus.
The fund manager increased the share of cash in the global stock funds by decreasing the positions in the US and European indexes, taking into account its strong growth (it is worth noting that S&P 500 from the bottom observed in the middle of October has grown non-stop by more than 11%), the potential of growth from the current levels looks limited, provided that the risk of possible correction is estimated to be high. Based on these expectations, in the sectoral funds the share of cash has been also increased. At the moment, we are taking a moderate position and we are keeping rather high share of cash in the stock funds, just in case the markets go down to be able to restore positions at more attractive levels or correct the portfolio structure according to a further situation.
In November, the market of corporate bonds “had some rest” after sharp movements in October. The segment of bonds with the High Grade investment rating showed price growth following the price growth of US Treasuries and German Bunds. In spite of expected potential increase of the key interest rate by the US Regulator in the middle of 2015, the demand for US Treasuries and Bunds remains stable high against the background of decreasing inflation expectations, pushing up prices in the whole segment of bonds with high investment ratings. Bonds denominated in euro outperformed — interest rate of 10-year Bunds lowered below 0.7% reaching its absolute historical minimum against the background of expecting continuation of credit policy watering-down in the euro area, while credit risk premium remained at the same levels. The segment of high yield corporate bonds denominated in euro also continued the recovery after October corrections. While the similar segment denominated in US dollar met a slight lowering due to growth of credit risk premium — investors preferred quality to risk.
In the government bond market of emerging countries, similar dynamics was practically observed during the whole month. However, the decision taken by OPEC, causing the landslide of oil prices, made some corrections in the market. The situation in the market of raw commodities caused the wave of sales of countries-exporters bonds on the one hand, and high demand for bonds of countries-importers on the other hand. Nevertheless, the common market of bonds denominated in dollar concluded the month in minus, as countries-exporters have major weight in the corresponding indexes.
It is worth mentioning separately the segment of Russian corporate Eurobonds. Continuous slide down of ruble and oil price along with some reference to new sanctions by the EU and USA did not leave any chances to price restoration in short-term.
We expect in the nearest future the segment of top-quality bonds will be sensitive to the dynamics of US Treasuries and Bunds, but the segment of high-yield bonds will react to the dynamics of the stock market and the situation in the energy source market. On the basis of that, in November in ABLV Global Corporate USD Bond Fund and ABLV European Corporate EUR Bond Fund, the manager increased orderly the share of top-quality bonds, in order to benefit from the price growth of US Treasuries and undercut the influence of commodity trade market and stock markets dynamics on the value of fund shares.
In the government bond funds of emerging countries, the weight of “investment grade” bonds was added and the weight of energy-dependant countries was reduced.
The segment of Russian Eurobonds will more likely remain under pressure until oil prices get stabilized.
The managers of the stock funds continue to stick to the strategy of investing in bonds with high coupon yield and issuers with reliable credit profiles. Responding to current market situation, we are considering the possibility to increase the share of cash for further purchase of underestimated bonds.