Security Coupon (%) Maturity
Nominal/ Quantity Market Value US$’000 Percentage of total net assets % Transferable securities and money market instruments admitted to an official exchange listing / dealt in on another regulated market 93.81% Bonds 93.81%
Corporate Bonds 89.51% Australia 1.42%
Commonwealth Bank of Australia 4.5000 09/12/25 400,000 406 1.42 China 35.48%
Agile Property 9.0000 21/05/20 200,000 212 0.74
Caifu 8.7500 24/01/20 200,000 212 0.74
China Aoyuan Property 11.2500 17/01/19 200,000 219 0.77 China Overseas Finance Cayman III 5.3750 29/10/23 200,000 222 0.78 China Railway Resources 3.8500 05/02/23 400,000 412 1.44 China Resources Gas (EMTN) 4.5000 05/04/22 400,000 430 1.51
CIFI 12.2500 15/04/18 200,000 213 0.75
CNOOC Finance 2015 USA 3.5000 05/05/25 400,000 394 1.38 CNOOC Nexen Finance 2014 ULC 4.2500 30/04/24 400,000 415 1.45 CNPC General Capital 3.4000 16/04/23 430,000 435 1.53 CRCC Yuxiang 3.5000 16/05/23 400,000 404 1.41 Eastern Creation Investment 3.6250 20/03/19 400,000 411 1.44 ENN Energy 6.0000 13/05/21 400,000 449 1.57 Express BVI 2015 3.0000 04/06/18 400,000 402 1.41 Future Land Development 10.2500 21/07/19 400,000 436 1.53 Industrial & Commercial Bank of China (EMTN) 2.2500 21/12/18 222,000 223 0.78 Kunlun Energy 3.7500 13/05/25 200,000 199 0.70 Logan Property 11.2500 04/06/19 200,000 221 0.78 Longfor Properties 6.7500 29/01/23 200,000 212 0.74 Mega Advance Investments 5.0000 12/05/21 400,000 436 1.53 Proven Honour Capital 4.1250 19/05/25 500,000 508 1.78 Semiconductor Manufacturing International 4.1250 07/10/19 400,000 410 1.44 Sinopec Group Overseas Development 2012 3.9000 17/05/22 400,000 422 1.48 Sinopec Group Overseas Development 2015 3.2500 28/04/25 350,000 348 1.22 Three Gorges Finance I Cayman Islands 3.7000 10/06/25 430,000 455 1.59 Times Property 11.4500 05/03/20 200,000 223 0.78 Wanda Properties International 7.2500 29/01/24 400,000 416 1.46 Yingde Gases Investment 8.1250 22/04/18 200,000 147 0.51 Zhaohai Investment 4.0000 23/07/20 230,000 233 0.82 Zhaohai Investment 3.1000 23/07/18 200,000 200 0.70 Zhiyuan 6.2000 11/01/19 200,000 206 0.72 10,125 35.48 Hong Kong 8.56% Champion (EMTN) 3.7500 17/01/23 400,000 402 1.41 HLP Finance (EMTN) 4.7500 25/06/22 400,000 429 1.50 Hongkong Land Finance Cayman Islands (EMTN) 4.5000 01/06/22 400,000 442 1.56 Hutchison Whampoa International 09 7.6250 09/04/19 200,000 232 0.81 Hutchison Whampoa International 14 3.6250 31/10/24 200,000 208 0.73 Shimao Property 8.3750 10/02/22 300,000 329 1.15 Zhejiang Energy Hong Kong 2.3000 30/09/17 400,000 400 1.40
Security Coupon (%) Maturity Nominal/ Quantity Market Value US$’000 Percentage of total net assets % India 9.41% Bank of Baroda/London 4.8750 23/07/19 200,000 213 0.75 Bharti Airtel International Netherlands 5.3500 20/05/24 400,000 433 1.52 Bharti Airtel International Netherlands 5.1250 11/03/23 200,000 214 0.75
GCX 7.0000 01/08/19 400,000 376 1.32
HDFC Bank (EMTN) 3.0000 06/03/18 200,000 202 0.71 ICICI Bank Dubai (EMTN) 4.0000 18/03/26 400,000 402 1.41 NTPC (EMTN) 4.2500 26/02/26 400,000 412 1.44 ONGC Videsh 4.6250 15/07/24 200,000 211 0.74 State Bank of India (London) 4.8750 17/04/24 200,000 221 0.77
2,684 9.41
Indonesia 8.29%
Jababeka International 7.5000 24/09/19 200,000 201 0.70 MPM Global Pte 6.7500 19/09/19 200,000 197 0.69 Pelabuhan Indonesia III PT 4.8750 01/10/24 400,000 404 1.41 Pertamina Persero (EMTN) 5.6250 20/05/43 430,000 381 1.33 Perusahaan Listrik Negara PT (EMTN) 5.2500 24/10/42 430,000 386 1.36 Pratama Agung Pte 6.2500 24/02/20 200,000 200 0.70 Star Energy Geothermal Wayang Windu 6.1250 27/03/20 200,000 203 0.71 TBG Global 4.6250 03/04/18 200,000 202 0.71 TBG Global 5.2500 10/02/22 200,000 194 0.68
2,368 8.29
Malaysia 3.53%
Danga Capital 3.0350 01/03/21 400,000 403 1.41 Malayan Banking (EMTN) VAR 20/09/22 400,000 405 1.41 Petronas Global Sukuk 2.7070 18/03/20 200,000 201 0.71
1,009 3.53
Philippines 4.59%
Energy Development 6.5000 20/01/21 400,000 443 1.56 Power Sector Assets & Liabilities Management 7.3900 02/12/24 290,000 387 1.35 Power Sector Assets & Liabilities Management 7.2500 27/05/19 150,000 175 0.61 Rizal Commercial Banking (EMTN) 3.4500 02/02/21 300,000 306 1.07
1,311 4.59
Singapore 4.21%
Global Logistic Properties (EMTN) 3.8750 04/06/25 400,000 400 1.40 HPHT Finance 15 2.2500 17/03/18 400,000 400 1.40 United Overseas Bank (EMTN) VAR 16/09/26 400,000 403 1.41
Security Coupon (%) Maturity Nominal/ Quantity Market Value US$’000 Percentage of total net assets % South Korea 8.40%
Doosan Power System VAR 03/12/45 500,000 503 1.76 Hyundai Capital Services (EMTN) 2.6250 29/09/20 400,000 401 1.41 Korea Gas 4.2500 02/11/20 300,000 330 1.16 Korea Hydro & Nuclear Power 3.2500 15/06/25 480,000 505 1.76 Minera y Metalurgica del Boleo 2.8750 07/05/19 450,000 460 1.61 Shinhan Bank 1.8750 30/07/18 200,000 200 0.70
2,399 8.40
Sri Lanka 0.69%
Bank of Ceylon 5.3250 16/04/18 200,000 197 0.69 Thailand 2.28%
Krung Thai Bank Cayman (EMTN) VAR 26/12/24 230,000 237 0.83 Siam Commercial Bank (EMTN) 3.5000 07/04/19 400,000 415 1.45
652 2.28
United Kingdom 2.65%
HSBC (PERP) VAR 29/12/49 400,000 372 1.30 Standard Chartered 3.9500 11/01/23 400,000 384 1.35
756 2.65
Total Corporate Bonds 25,552 89.51
Government Bonds 4.30% Indonesia 1.64%
Indonesia (Republic of) (EMTN) 3.3750 15/04/23 200,000 196 0.69 Perusahaan Penerbit SBSN Indonesia III 4.5500 29/03/26 273,000 274 0.95
470 1.64
Mongolia 1.59%
Mongolia (Government of) (EMTN) 10.8750 06/04/21 450,000 453 1.59 Philippines 1.07%
Philippines (Republic of) 7.7500 14/01/31 200,000 304 1.07
Total Government Bonds 1,227 4.30
Total Bonds 26,779 93.81
Total Transferable securities and money market instruments admitted to an official
Derivatives (0.08%) Future contracts (0.08%)
Future Maturity Notional
Unrealised Gains/(Losses) US$’000
Percentage of total net assets %
CBT US Long Bond 21/06/16 11 (10) (0.03) CBT US 10 Year Note 21/06/16 (32) (15) (0.05)
CBT US 2 Year Note 30/06/16 6 - -
CBT US 5 Year Note 30/06/16 9 1 -
Unrealised losses on future contracts (24) (0.08)
Unrealised losses on derivatives (24) (0.08)
Total investments 26,755 93.73
Other net assets 1,791 6.27
Performance
For the six month period ended 31 March 2016, the value of the Asian Local Currency Short Duration Bond – A Income shares increased by 3.22%, compared to an increase of 4.95% in the benchmark, the iBoxx Asia ex Japan Sovereign 1-3 years Index.
Source: Markit, Lipper, Basis: total return, NAV to NAV, net of annual charges, gross income reinvested, USD.
Market review
Asian short-duration government bond yields generally fell over the six months under review. After a cautious start, markets were galvanised by improving sentiment towards China, following reassurances from Beijing about growth and reforms. In turn, once-volatile currencies stabilised and commodity prices started showing signs of recovery, spurring risk appetite further. Meanwhile, regional central banks continued to cut interest rates amid sluggish growth, providing additional incentive for bond investors to short-cover.
Most regional currencies benefited from US dollar weakness over the half year. Despite hiking interest rates in December, the Federal Reserve (Fed) nevertheless grew more dovish towards the period-end, scaling back expectations of further policy normalisation. The ringgit climbed 13%, while the rupiah rose 10.5%. Safe haven bets drove the yen 7% higher, despite the Bank of Japan’s imposition of negative rates. The Singapore dollar strengthened by 6%, while the baht and won gained by around 3.5%. The Hong Kong dollar was flat, whereas the Indian rupee fell slightly amid equity outflows. But it was the renminbi, which weakened by 1.5%, that gripped markets. Its sharp fall after China moved to a new market-driven currency-setting framework sparked misguided fears of a competitive devaluation and led to heightened volatility worldwide. Losses were mitigated after Beijing pledged to ensure currency stability.
Overall, Indonesian short-duration bonds outperformed as sentiment was buoyed by the government’s stimulus measures and the central bank’s three rate cuts. Singapore strengthened after the Fed tempered its rate hike expectations. Indian bonds sold off on profit-taking at first, but rebounded on hopes of easier monetary policy following the announcement of a fiscally prudent budget that was well received. Despite suffering from risk aversion initially, Chinese bonds later gained from policy rate cuts and premier Li Keqiang’s pledge that growth targets would be met and reforms would remain on course. Elsewhere, good local demand drove Thai yields lower against a backdrop of weak consumer prices and sluggish recovery. In Malaysia, buying interest emerged on the back of negative hedging costs, although gains were later pared by simmering political tensions related to scandal-plagued state investment firm 1MDB. In Korea and Taiwan, however, short-term bonds were relatively subdued. Hong Kong was weak, with yields ending higher.
Portfolio review
Both our interest rate and currency strategies were positive in absolute terms, but currencies detracted in relative terms. In interest rates, our overweight positions in Indian and Indonesian bonds were the main
contributors to relative performance. Conversely, our underweight to Malaysian bonds pared gains. In addition, the underweight to the ringgit was the biggest detractor in our currency strategies. On a positive note, the overweight to the rupiah mitigated losses.
During the review period, we increased our exposure to Korean bonds, supported by expectations of further policy easing. We moved from a significant underweight to Malaysian bonds to a small overweight, as macro and political risks were deemed to have been sufficiently priced in. We also increased our overweight to India and Indonesia, given relatively attractive valuations and, against this, we increased the underweight to Thailand and the Philippines as valuations were relatively expensive. Finally, we exited Sri Lankan bonds on the back of mounting macro and political risks. The combination of these trades resulted in only a slight shortening of the duration of the Fund over the review period. Taking into account the notable weakness in emerging and Asian currencies initially, the Fund’s overall defensiveness declined as we moved from an approximately 7% long US-dollar position to flat. Within this, we moved from an underweight to overweight position in the peso. Ringgit exposure was more than halved to a 5% underweight. Won exposure was lifted from a sizeable underweight to flat, while exposure to the rupiah was increased. There were also some reductions in risk as we trimmed our exposure to the Indian rupee, exited the Sri Lankan rupee and increased the underweight to the baht. Over the period, we maintained a neutral position in the yuan.
Outlook
Central banks are expected to remain on an easing path in the face of the still-challenging macro environment. At the time of writing, India cut interest rates and said policy would stay accommodative. This bodes well for regional bond markets. In China, better co-ordination and clarity in communication are encouraging, and both combined should help reduce the risk of policy error. The renminbi’s continued stability is in Beijing’s best interest and should inspire investor confidence. However, risks persist. It remains to be seen if Asian currencies will hold on or add to their recent gains. In addition, commodities, which have been enjoying a relief rally, are likely to run out of steam, given still-ample supply, weak demand and the
unresolved tussle between major producers. Investors could react badly to another sharp price correction.
Aberdeen Asian Fixed Income Team
April 2016