Management company comment about ABLV open-end mutual funds in February

Riga, Latvia, March 4, 2015, 11:37 / Investments

In February, in the global financial markets positive trends continued to prevail. The markets of corporate bonds and government bonds of emerging markets continued to recover after December fall while investors preferred risk to quality, therefore credit risk premiums lowered.

The segment of dollar bonds with high grade changed insignificantly as prices were influenced by growing yield of US Treasuries. However, a negative effect was compensated by the shrink of credit spread. Although, the segment of high yield bonds showed a confident growth in prices supported by the positive dynamics of the global stock market and the growth of Brent oil prices.

In the bond markets denominated in euro, the situation was developing even more beneficially. As opposed to US Treasuries, the yield of German Bunds still remained at lowest value reached in January, therefore, the growth in prices was observed in all segments of the market. The only exception was the Greek bond market where the motion amplitude of prices exceeded 10% against the background of difficult negotiations among the Greek authorities and the authorities of Eurozone and European Group regarding the fate of financial aid programs to Greece.

In the segment of Russian Eurobonds, the key event in February was Minsk agreement aimed at resolution of conflict in Ukraine that resulted in a strong growth in prices of both government and corporate bonds. The stabilization of oil prices also significantly supported the market. However, a spoon of tar in a barrel of honey was Moody’s decision about the rating downgrade of Russia from Baa3 to Ba1, however it was anticipated by the majority of market’s members, therefore caused a little correction.

In the mid-term, we expect the retention of current market tendencies. The segment of top-quality corporate bonds remains sensitive to the dynamics of US Treasuries and Bunds, but the segment of high yield corporate bonds is sensitive to the dynamics of the stock market. We continue to follow the strategy of investing in mid- and long-term bonds with a reliable credit profile of an issuer. Depending on the events in the market, we plan either to increase or decrease the share of High Grade bonds, as well as to regulate the duration of the portfolio.

In turn, the segment of Russian Eurobonds will continue most likely to be influenced by the dynamics of oil prices and further geopolitical situation.

In the global stock market, primarily in the American and European stock markets, February turned to show a positive picture. The main stock indexes were growing all month long, on balance showing a notable growth. Growing tendencies were supported by not bad macroeconomic data, mostly from Europe, the end of reports’ season that in general turned to be better than expected and a continuing parade of interest rates reduction introduced by leading central banks. On the last day of February, the National Bank of China again reduced interest rates and it has become already the 21st reduction of interest rates committed by the central banks since the beginning of the year.

Since the beginning of the month, the American stock market has started to catch Europe that ran far ahead, however, the gap between these two markets continued to widen. The stocks of American companies in February gained on the average 5.5%, but their European competitors showed the growth of quotation by 7.5%. It is important to note that a significant push for the growth of US market was ensured at least by a temporary recovery of oil quotation. Against the background of oil price “kickback”, investors hurried to buy seriously cheapened stocks of oil producers, as a result stocks of this sector “returned” on the average by 10% in February and granted support to the whole market.

In February, the main stage of report publishing season in Europe took place. At the moment, the three fourth of all issuers have already reported, more than a half showed a higher level of yield than it was expected by analysts. Besides, a “positive” surprise on the average comprised only 2%. However, relatively modest financial performance did not confuse stock gamblers who continued to win back monetary stimulations of the ECB that has to start to buy out bonds from the market already in March.

In the USA, the season of reporting has almost finished. The overwhelming majority of American companies (around 75%) made their investors happy as they showed higher yield than analysts expected. Although a general increase of profits only amounted to 5% that is quite a modest marker in today’s high market assessment. Perhaps, it explains still lagging behind dynamics of the US market from the European market since the beginning of the year. Emerging markets still do not impress, within a month the growth equalled only 3%. It obviously points to sophistication of players. Chaotic buying-up of assets is no longer valid, the markets of those countries are being preferred which central banks follow stimulating policy, namely, of Europe and Japan, with recently joining Australia.

The main strategy of equity funds remains the tendency “to hold”. In the funds of industrial ETF the priority is given to cyclic segments of US and European economies, in the funds of global ETF the priority is given to the markets of developed countries though paying bigger attention to minimization of currency exchange risks.

Ilmārs Jargans
Head of Public Relations Department
+371 6777 5296