Mark Dowding, co-head of Investment Grade, BlueBay Asset Management comments on his investment strategy in light of the situation in Greece, the prospect of a Fed rate hike and recent pressure on emerging market currencies.
Over the course of last week, it seems as if financial markets have started to prepare for the summer lull, with risky assets largely paused for breath.
With respect to Greece, the near term implementation risks for a third programme have subsided somewhat with the Greek parliament passing a second set of policy measures demanded by its creditors with a strong majority (230 out of 300 votes). With a stronger dollar, lingering concerns of a Chinese hard landing, lifting of Iran sanctions and a higher crude oil inventory build-up, we have observed a steep decline in oil prices and commodity prices over the past two weeks.
On the US economic data front, existing monthly home sales data surprised to the upside. In our opinion such data is crucial for our analysis of the US economic outlook, and if this underlying strength continues it should lead to above trend growth for the second half of 2015 and a FED gradual rate lift off in September. Within Corporate Credit markets, after the substantial tightening observed the week before last, markets have been fairly subdued with cash spreads only marginally tighter last week.
Strategy performance was flat with outperformance from the corporate credit book largely offset by underperformance emanating from our sovereign credit book. Our long bias in CEE and Emerging Market sovereign credits detracted from overall returns as they generally closed the week marginally wider on spread.