ING (L) Renta Fund Emerging Markets Debt Local Currency

Transcription

1 ING (L) Renta Fund Emerging Markets Debt Local Currency Monthly Report Month ending 29 th February 2012 Main Points The ELMI+ benchmark index posted a return of 2.3%, continuing on a strong start to Yields moved lower by 8 bp to 3.35%. All regions posted positive returns, led by Europe, while Asia was a clear underperformer. The portfolio performed in line with the benchmark in February, with positive contributions from rates offset by negative performance in FX. Our outlook for the asset class remains positive for the near-term. Market Review General overview In February, the benchmark posted a strong return of 2.3%, adding to the run of the previous month. EM currency appreciation formed part of the generic rally that extended in all risk asset classes, heavily supported by the deployment of the second phase of the ECB s long-term refinancing operation (LTRO). It was provided to Eurozone banks at the end of the month, and matched even the optimistic expectations in both size and participation rate. Funding stresses continued to ease, with normalization seen in Europe including Eastern Europe. Due to this, expectations of a more severe downturn in Europe were paired back, causing Europe to outperform their non-european peers by a meaningful amount. All regions posted positive returns with Asia being the slowest. All individual countries posted positive returns excluding Israel and Indonesia. Best performers were Poland, South Africa and Russia. Local currency downgrades were put on Egypt and Sri Lanka, two countries in which we have no holdings. Latin America Colombia and Chile continued to benefit from the appreciation of EMFX. In the former, the central bank expressed the desire to have a weaker currency, but this would likely require stepping up their $20mln/day purchases that they have been doing since the beginning of the month. On 24 th February, it hiked the policy rate by 25 bps to 5.25% as expected and extended its FX intervention program through August. In Chile, the central bank kept rates on hold, and the minutes revealed that room for additional cuts was limited, as demand remained solid, the labour market remained tight and the core inflation measures continued to normalize. The Brazilian real s appreciation was somewhat less pronounced, as Brazilian authorities increased the pace of measures aimed at stemming the currency appreciation: the central bank has been very active in the spot and forward markets during the month, intervening multiple times. Even less pronounced was the appreciation of the Mexican peso, as foreign inflows into the MBONO market slowed down, and the market was caught overweight (both in FX & rates). The quarterly inflation report, released on 15 th February revealed that the Banxico maintained its stance on monetary policy at neutral. Argentina and Peru again lagged the other countries in the region. The Argentine peso even declined against USD, as the real GDP grew less than expected. In Peru, the central bank kept rates on hold at their February meeting, for the 9th month in a row, maintaining their neutral bias. Europe Emerging Europe FX continued to post gains, following a strong start to In CE3, the zloty was the strongest performer. Hawkish comments from NBP members and

2 strong demand in bond auctions have added to the appreciation pressures. On the data front, February PMI data slipped somewhat from the strong January number, CPI came in slightly lower than consensus and retail sales came in slightly better than the estimates. The Hungarian forint also posted gains, although the market appears to be cautiously optimistic that an IMF agreement will be reached, but now the uncertainty comes from the timing of an agreement. On the monetary policy side, the minutes from the NBH meeting surprised the market somewhat, as MPC members were contemplating a 25bp cut well ahead of market pricing. Russia and Czech Republic performed in line with the region, with the former benefitting from high oil prices, despite some uncertainty around the election, which was eventually won convincingly by Putin. Of the high yielding currencies in the EMEA space, Turkey was the main underperformer. The main concerns came from the spike higher in oil prices, adding to current account pressures. Domestic data continue to hold up well, but point to a very gradual slowdown rather than the large adjustment needed to bring inflation and current account numbers back into sustainable territory. Asia Asia delivered modest positive returns in February, lagging other regions. The Thai baht led the way following inflows from investors, expecting a healthy recovery following worse-than-expected GDP data that reflected the severe impact of the floods. Despite the low level of returns, some currencies experienced volatility during the period, such as in Malaysia. The swings in the spot rate on the ringgit were driven by overall positive risk sentiment and higher EUR. Meanwhile, inflation remained constant, unemployment rate declined slightly, and stronger-than-expected economic growth was announced. Taken together, Malaysia s economic picture is healthy. The Indian rupee also posted a decent return despite the overhang of developments in other regions. Some of the gains came from the continued rebound in the rupee, following the sharp selloff in late Investors took comfort in an improving inflation picture, while growth was more or less consistent with expectations. Meanwhile, the central bank suggested that lower inflation could lead to more accommodative policies to boost growth, helping to bolster demand for the INR. Middle East & Africa The rand appreciated versus the USD in February. The much anticipated budget caused some confusion amongst market participants though, as the initial strong headlines left some wondering how the 4.6% budget deficit target would be achieved in a lower growth environment. Data continue to hold up well, with the Kagiso PMI coming in at 57.9 in February after an already strong 53.2 in January. Tensions in the region amid claims of continued progress in Iran s nuclear program, weighed on the Israeli shekel in February. The currency depreciated against the USD, despite strong domestic economic data. Investment Policy Performance The portfolio performed in line with the index in February, with positive contributions in rates offset by negative performance in FX. Overweight positions in Latam FX added to performance (Brazil, Mexico and Colombia) as did overweight positions in Russia

3 and Poland. Underweight FX positions in Hungary and Czech detracted from performance, as did our overweight in Israel. In Asia FX, positive performance from the overweight positions in Malaysia and China more than offset by detractions from the underweight in Thailand and overweight in Indonesia. Within bond selection Asia and EMEA added to positively to performance with Latam detracting from performance. Portfolio changes and investment strategy Previous month Due to increased macro risks from high oil prices and the Greek PSI deadline, we reduced selective overweights in Asia but maintain a positive bias. US data remain supportive and with a higher than anticipated take up at the latest ECB 3y LTRO, the underlying market dynamics remain positive, at least in the short term. As the Greek PSI deadline is behind, we feel the market is entering a phase where macroeconomic data will again be at the forefront of investors minds. On the back of potential second round effects from high commodity prices and uncertainty around Greece, we have reduced our overweight position in India, Indonesia and Philippines to neutral and maintain overweights in Singapore, Korea and Malaysia. In rates, we have added to our overweight in South Africa on the back of the positive budget report and our projections for interest rates in 2012/13. We have also added a long Czech asset swap position reflecting on solid fiscal projections and valuations versus other EMEA markets in the bond space. Coming period Valuations remain attractive across the EM space and continue to offer value in select countries. After the broad based rally year to date, it is natural for the markets to take a step back and evaluate the fundamentals on a country by country basis versus potential macroeconomic risks. Market psychology is playing a large part in the price action with many unwilling to buy into markets where valuations remain attractive but gains have been rapid. Our view remains that ample liquidity and low core market interest rates will continue to further support these assets and it is generally too early to gauge if this will feed into hard data particularly in Europe. The austerity to be experienced in Europe as a whole casts some doubt on whether the powerhouses in Western Europe can offset a recession in the periphery. We maintain our underweights in countries that are exposed to weak European data, in particular Czech Republic and Hungary and continue to favour Latam and Asia over EMEA. We maintain an overweight duration versus benchmark mainly through positioning in the long end of yield curves in South Africa, Israel, Poland and Mexico. Outlook Our outlook for the asset class remains positive for the near-term. Global economic news shows that economic growth is bottoming out, aided by the generous supply of liquidity by the ECB most notably. The provision of liquidity will hopefully find its way to the real economy at some stage, though evidence is not yet there. On the one hand, the LTRO continues to help ease funding conditions for banks, and has indirectly helped bring down sovereign spreads of countries, such as Italy and Spain, where the domestic banks have accounted for a large take out of the participation rate in the ECB funding facility. Furthermore, the operation supports risk appetite broadly. However, we don t think that the European issues have been fully solved, but that the economic news and liquidity provision buy policymakers time to look for structural solutions. These solutions are likely to have to deal with the terms of economic governance within the Eurozone and the adjustment programmes in

4 individual countries. Currency valuations have caught up for the short-term, though the longer term appreciation trend still stands. Also, rates remain relatively attractive versus those in the developed world, where rates will stay low for an extended period of time. Various countries are still on an easing path, though the improving global market environment requires fewer stimuli. But there remains some slack in growth patterns across EM countries to provide stimulus, which we expect to materialize mostly on the monetary front. China and Brazil are cases in point. Fundamentally, balance of payments remains well-supported. Though current accounts are not as pronounced as they were in the recent past for EM countries in the aggregate, long term capital flows like FDI remain supportive. On the technical front, portfolio flows also remain positive, both on the EMD and EM Equity side. The tactical and strategic allocations to EMD have gained momentum and will remain supportive for some time to come, in our view. For more information on ING s investment strategies or our mutual funds, please contact: ING Investment Management Asia Pacific (Singapore) Ltd, Company Registration No: R, 9 Raffles Place #23-08 Republic Plaza, Singapore , Tel: , Fax: , Website: ING Investment Management (ING IM) manages over EUR 300 bln of assets for institutions and individual investors worldwide. ING IM is active in countries across the Americas, Asia-Pacific, Europe and the Middle East. ING IM is a business line of ING Insurance, owned by ING Group, a global financial services company. ING IM applies its proprietary research and analysis, global resources and risk management to offer a wide variety of strategies, investment vehicles and advisory services in all major asset classes and investment styles.

5 Key Risks An investment in any product or the Fund mentioned in this document may entail different risks of varying degrees. This includes but not limited to markets, credit, liquidity, product specific, legal, cross-border, foreign exchange and other risks. Please speak to your financial or legal adviser to understand the risks involved and whether it is appropriate for you to assume such risks before investing in any product or the Fund. Disclaimer The ING (L) Renta Fund Emerging Markets Debt (Local Currency) is a sub-fund under ING (L), a variable capital investment company established in Luxembourg, and is recognized under Section 287 of the Securities and Futures Act, Chapter 289 of Singapore Act ( Act ). ING (L) is the responsible person as defined under the Act and has appointed ING Investment Management Asia Pacific (Singapore) Ltd as its corporate representative in connection with the offer of Shares in the Fund. This document is prepared for general information only and does not have any regard to the specific investment objective, financial situation and the particular needs of any specific person who may receive this document. An investment in any Fund mentioned in the document is not intended to be a complete investment programme for any investor and prospective investors should carefully consider whether an investment in such Fund is suitable for them in light of their own circumstances, financial resources and entire investment programme. Prospective investors should seek advice from a financial adviser before making a commitment to invest in the Fund. Any opinion, view or estimate presented is subject to change without notice and is made on a general basis and is not to be relied on by investors as constituting investment advice. Any past performance, projection or forecast made is not necessarily indicative of future performance. The value of Shares in the Fund and the income from them, if any, may fall as well as rise. No representation or promise as to the performance of the Fund or the return of your investment is made. Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. The information contained in this document has been obtained from sources that ING Investment Management Asia Pacific (Singapore) Limited believes to be reliable and accurate, but no representation or warranty, expressed or implied, is made as to the fairness, accuracy, timeliness or completeness of the information. Neither ING Investment Management Asia Pacific (Singapore) Limited, ING Bank N.V. nor the Fund, nor their affiliates, directors or employees (collectively, ING ) accepts any liability whatsoever for any loss arising directly or indirectly from any use of the information in this document. This document and information presented do not constitute a distribution, an offer to sell or the solicitation of an offer to buy any securities in any jurisdiction in which such distribution or offer is not authorised to be made to any person. An investment in the Fund mentioned in this document carries risk, including the possible loss of the principal amount invested, and are not obligations of, deposits in, or guaranteed or insured by ING or distributors of the Fund. The Fund may not be suitable for persons who are averse to such risks. Investors should read the prospectus for details of the product features and risks of investing in the Fund. Copies of the prospectus can be obtained from ING Investment Management Asia Pacific (Singapore) Ltd and its authorized distributors. ING may have interests in the Fund and may also perform or seek to perform brokering and other investment or securities-related services for the Fund. Applications for Shares in the Fund must be made on the application form accompanying the Fund's prospectus.