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Welcome to our blog – a place to discuss and exchange thoughts and ideas about iX-7 Asset Management SA, the stock markets and all matters relating to wealth management.
Across the globe, economic ratios are suffering from the conflict between Russia and Ukraine. Inflation has somehow spun out of control in some developed market countries where it is negatively impacting consumer confidence. While this applies in full to developed market regions, GCC countries and some Asian countries appear to be less impacted by the most recent issues. This is true because these countries have less import-driven economies, and budgets are balanced out by proceeds of higher energy prices.
For traditional fixed income investors, market conditions have been extremely difficult during the first six months of 2022. While credit swap ratios have also accelerated recently, the underlying credit quality of debtors has not changed much, they remain stable.
We continue to maintain a very favorable medium-term view on GCC countries especially as, in the immediate term, budget deficits are unlikely to inflate much and social unrest, because of inflation, is unlikely to spin-out. Given this scenario, we have a fertile situation of credit linked notes benefiting from a higher return opportunity when compared with a traditional sukuk bond
Conditions in financial markets are improving but not for all investors. As of now, 24% of the world’s outstanding debt is providing a negative yield in nominal terms. Investing in the traditional fixed income segment is therefore a frigid proposition from a return perspective as it is hard to find ways of generating a positive return. We believe that these negative return conditions for pure fixed income investors will prevail until 2026. On the contrary, credit linked notes (CLN) offer the sources of carry (return) within the fixed income segment without the need to adventure into the very speculative segments to achieve returns from investment in high-quality programs. Credit spreads have widened since the beginning of the year and are now substantially higher than historic averages. This suggests some stress in the market, and investors can benefit from solid developments that were taking place at corporate and government levels in the past. CLNs based on GCC issuers are particularly attractive as the growth outlook remains very valid, and spillovers from develop market concerns are most likely very limited.
Going forward:
Knowledge is power.
