Market round-up: Debt quality stays under pressure post-note ban
In other news, India, Latin America power hedge fund gains in EMs; hedge funds are bracing for a market sell-off
Care Ratings’ Debt Quality Index posted a marginal improvement last month compared to January, although that was largely owing to an increase in freshly issued AAA-rated debt. Broadly speaking, debt quality continues to be under pressure. The chart shows how it has fallen in the past year. “After improving marginally in Feb’16, the index declined sharply in Mar’16. The index has shown stability, though with an upward bias in the subsequent months up to Aug’16, while it declined in Sept’16 and Oct’16. The decline continued in the month of Jan’17, mainly on account of few large issuers being downgraded. However, Feb’17 saw a marginal rise to 90.47 influenced by increase in fresh AAA-rated debt,” CARE Ratings said in a note.
India, Latin America power hedge fund gains in EMs
Hedge funds saw their gains from emerging markets (EMs) drop in February, with the proprietary index of Hedge Fund Research Inc. (HFRI) rising 1.45% in the month. This was lower than the 3.03% rise in January. For calendar year 2017, the HFRI EM indices gained 4.52%, powered by India and Latin America. The Indian index posted the biggest gain of 9.46% for the first two months of 2017, followed by a 9% gain in the Latin American index. Russia and Eastern European index declined 1.91% in February but made a modest cumulative gain of 0.94% for 2017. “While recent hedge fund performance has been positively correlated to equity and credit markets, managers remain focused on, and sensitive to, near-term macroeconomic and geopolitical risks, including new US trade policies, increasing US interest rates, and upcoming EU (European Union) elections. Managers who are able to capture upside trends while also maintaining adequate tactical downside protections are likely to lead industry performance through 1H17,” the HFR research note said.
Hedge funds are bracing for a market sell-off
US stocks have piled up $1.5 trillion in market value this year, but hedge funds are bracing for tough times ahead. Based on buying and selling in 2017, managers have stopped loading up on bullish positioning. They’ve also become less reliant on US stocks by selling economically sensitive bank shares and materials like copper, shows data compiled by Credit Suisse Group AG. What are they buying? Gold. It’s a shift from late December, when hedge fund exposure to US stocks, particularly financials, reached near record levels. In part, the move is as simple as prudent management, with funds taking profit after the longest rally in banking shares since 2013, said Benjamin Dunn, president of Alpha Theory Llc, which works with hedge funds overseeing about $6 billion. At the same time, the shift reflects lingering questions about the pace of policy changes and economic improvements, he said. Bloomberg