Stewart Investors manage investment portfolios on behalf of our clients over the long term and have held shares in some companies for over 20 years. They launched their first investment strategy in 1988.
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Please read the following important information for First Sentier Asian Quality Bond Fund
• The Fund invests primarily in debt securities of governments or quasi-government organization in Asia and/or issuers organised, headquartered or having their primary business operations in Asia.
• The Fund’s investments may be concentrated in a single, small number of countries or specific region which may have higher volatility or greater loss of capital than more diversified portfolios.
• The Fund invests in emerging markets which may have increased risks than developed markets including liquidity risk, currency risk/control, political and economic uncertainties, high degree of volatility, settlement risk and custody risk.
• The Fund invests in sovereign debt securities which are exposed to political, social and economic risks. The Fund may also expose to RMB currency and conversion risk.
• The Fund invests in debts or fixed income securities which may be subject to credit, interest rate, currency and credit rating reliability risks which would negatively affect its value. Investment grade securities may be subject to risk of being downgraded and the value of the Fund may be adversely affected. The Fund may invest in below investment grade, unrated debt securities which exposes to greater volatility risk, default risk and price changes due to change in the issuer's creditworthiness.
• The Fund may use FDIs for hedging and efficient portfolio management purposes, which may subject the Fund to additional liquidity, valuation, counterparty and over the counter transaction risks.
• For certain share classes, the Fund may at its discretion pay dividend out of capital or pay fees and expenses out of capital to increase distributable income and effectively a distribution out of capital. This amounts to a return or withdrawal of your original investment or from any capital gains attributable to that, and may result in an immediate decrease of NAV per share.
• It is possible that a part or entire value of your investment could be lost. You should not base your investment decision solely on this document. Please read the offering document including risk factors for details.
A monthly review and outlook of the Asian Quality Bond market.
Market review - as at December 2024
In line with market expectations, the Fed cut rates by 25 basis points (bps) in its last meeting of the year. However, policy messaging suggested that the decision was a closer call than expected. With markets already bracing for Trump’s policies in 2025, the US Treasury curve saw the belly to longer end rates sell-off into the end of the year as markets digested the Fed’s message that came with a hawkish tilt. The US Treasury curve steepened over the month, with the 2-year-10-year yield spread reaching a 2024 high of 33bps, before retracing slightly to 32bps. 10-year US benchmark interest rates climbed 40bps over the month to end the year at 4.57% while the 2-year US interest rate increased by 9bps to end at 4.24%.
Asian credit spreads stayed well supported amid low risk sentiment and weaker year end liquidity, Asian investment grade credit spreads narrowed another 3bps to end the year at 103bps, but total returns were impacted by the sell-off in rates. J.P. Morgan Asia Credit Index (JACI) investment grade bonds recorded -0.84% in total returns.
In India, the Adani group continued to refute bribery charges by the US Department of Justice and the SEC, projecting a ‘business as usual’ image. Bloomberg reported that Adani Green was in talks with investors and banks to refinance USD1.1bn worth of loans due in March 2025. Bonds price across the Adani complex gradually stabilised and recovered some ground from its lows. Several pockets of Asian credits did not experience the typical year end lull. Spreads of Korean credits and Korean quasi-sovereign names traded wider by low-teens on South Korea’s political turmoil as the nation’s opposition-controlled parliament nation impeached its president as well as acting president in quick succession, leaving its deputy prime minister and finance minister, Choi Sang-mok, as South Korea’s new interim leader. In Thailand, Thai Oil (TOPTB) was placed on credit watch negative by S&P on delay and cost overruns of its Clean Fuel Project; TOPTB bonds spreads widened by over 30bps. In Japan, Honda and Nissan initiated discussions for a possible merger by 2026 to enhance their competitiveness in the rapidly evolving automotive industry, particularly in the electric vehicle (EV) sector. As the bigger beneficiary of the merger, bonds of Nissan gapped 70-90bps tighter on headlines.
Asian investment grade sovereign and quasi-sovereign dollar bonds performed broadly in line with the market, with spreads partially counteracting the rise in interest rates.
The primary market was quiet in December in anticipation for a very busy start for 2025, primary markets were expected to be filled with issuers planning to secure funding ahead of market volatility that could come with Trump’s inauguration as president.
Fund positioning
The Fund reduced its overweight in US interest rates while maintaining credit positioning at almost neutral levels versus its benchmark.
Performance review
On a net-of-fees basis, the First Sentier Asian Quality Bond Fund returned -1.19% in December, underperforming its benchmark by -0.35%.
An overall neutral stance in credit spreads vs the benchmark was flat for performance, but outperformance from sector and security selection added to positive returns. Exposure to local currency bonds such as the Australian Commonwealth Government Bonds detracted from returns as Australian rates rose over the month and most currencies weakened against the US dollar.
Source : Company data, First Sentier Investors, as of end of December 2024
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Important Information
Investment involves risks, past performance is not a guide to future performance. Refer to the offering documents of the respective funds for details, including risk factors. The information contained within this material has been obtained from sources that First Sentier Investors (“FSI”) believes to be reliable and accurate at the time of issue but no representation or warranty, expressed or implied, is made as to the fairness, accuracy or completeness of the information. To the extent permitted by law, neither FSI, nor any of its associates, nor any director, officer or employee accepts any liability whatsoever for any loss arising directly or indirectly from any use of this. It does not constitute investment advice and should not be used as the basis of any investment decision, nor should it be treated as a recommendation for any investment. The information in this material may not be edited and/or reproduced in whole or in part without the prior consent of FSI.
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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. All securities mentioned herein may or may not form part of the holdings of FSI’s portfolios at a certain point in time, and the holdings may change over time.
First Sentier Investors (Hong Kong) Limited is part of the investment management business of First Sentier Investors, which is ultimately owned by Mitsubishi UFJ Financial Group, Inc. (“MUFG”), a global financial group. First Sentier Investors includes a number of entities in different jurisdictions.
To the extent permitted by law, MUFG and its subsidiaries are not responsible for any statement or information contained in this material. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment or entity referred to in this material or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk, including loss of income and capital invested.
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