Primas Insights – Jan 2023
Primas Asset Management Limited
HK based Primas AM was founded in 2018 by investment professionals with over 100yrs of combined experience
With January now officially in the books, it’s time for an EM update. Fascinating start here in 2023 with JACI, EMBI, and CEMBI all up around 2-3% in January, with index spreads tightening 25-40bp in January. This performance compares to 15bp and 25bp tightening for US and EU credit respectively, meaning a decent outperformance of EM over DM credit. The Asian credit market was one of the best performers on the better sentiment driven by encouraging developments in China, including the faster-than-expected reopening and the announcement of clear measures to support the property market. All these are in line with the expectations we put out in our December newsletter.
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With these figures, it is reasonable to have second thoughts on whether EM credit has gone too fast and furious in particular China credit – which seems it’s pricing for (almost) perfection. Can the stunning outperformance over developed markets continue? In our opinion, we think the rally was justified as the significant value was embedded in EM credits prior to the sell-off. We think spreads now are more fair post the recent rally or perhaps even on the richer side when it comes to a selected segment of the market. However, absolute yields for certain segments are still attractive and we see plenty of opportunities given the wide dispersion within EM. To us, where we go from here and whether EM can further outperform DM depends on the US dollar which in turn depends broadly on US monetary policy.
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