Trader profile: Global bonds hang on Greece

Name: Andrew Lake

Position: head of fixed income at Mirabaud Asset Management

Experience: 19 years

Based: London

What asset class and geography are you are focused on?

I am a fixed-income portfolio manager and focus on the entire range of fixed income investments, from government bonds to high yield. Because of the fund strategies that I manage, I have no real constrictions as to what I focus on from a geographical perspective, just what I consider to be the best investment opportunities globally.

What is the outlook for the month ahead?

We will continue to see bouts of volatility, particularly given that yields are so low in most areas of fixed income, except perhaps high-yield. While I think that the move lower in the [German] Bund is over for now and we could see some consolidation and even tightening over the short term, there are a couple of key events that could drive markets either way. With regards to Greece and the IMF payments, there is still a great deal of uncertainty as to the final outcome here. Greece has until the end of this month to come to an agreement, as that is when the ECB deal rolls. The likelihood is that there will be some kind of muddle through, but it will put a damper on risk taking until it is resolved. Attention will also refocus on the US economy and whether the second quarter shows signs of a rebound. If there is further traction on the economy and unemployment, expectations of a first interest rate rise in September will begin to increase. This will put pressure on US Treasury yields and the dollar could also strengthen, which would have some implications for emerging-market volatility if capital flows back to the US.

What are the main risks, either upside or downside, to the outlook?

The upside would be that Greece is finally resolved. This would make risk rally in Europe, and so the upside would be in peripheral bonds and a huge rally in Greece. The downside to the view would be that Greece defaults, which would result in government bonds rallying and risk selling off. It would also put pressure on yields in the GCC, where oil is a big swing factor for sentiment.

What is the best investment at the moment?

We still like some parts of US high yield, particularly the more interest-rate insensitive areas. The note of caution here is that with yields generally low and summer approaching there could be increased volatility as a result of less liquidity.

What was the best investment you were ever involved in?

We owned a US high-yield health care company with a double-digit coupon that was trading well below par. The investment resulted in a series of good quarterly results plus the bonds being called and replaced with bank debt. The total return of the investment was significant over a year’s holding period.

What was the worst?

A US metals company. We bought into a new management team that would lower the cost of production and produce enough free cash flow to redeem the bonds at the next call date. The management team instead continued to miss its targets, and so we exited the position essentially flat to where we purchased the bonds six months earlier but with a small coupon return.

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Name: Andrew Lake

Position: head of fixed income at Mirabaud Asset Management

Experience: 19 years

Based: London

What asset class and geography are you are focused on?

I am a fixed-income portfolio manager and focus on the entire range of fixed income investments, from government bonds to high yield. Because of the fund strategies that I manage, I have no real constrictions as to what I focus on from a geographical perspective, just what I consider to be the best investment opportunities globally.

What is the outlook for the month ahead?

We will continue to see bouts of volatility, particularly given that yields are so low in most areas of fixed income, except perhaps high-yield. While I think that the move lower in the [German] Bund is over for now and we could see some consolidation and even tightening over the short term, there are a couple of key events that could drive markets either way. With regards to Greece and the IMF payments, there is still a great deal of uncertainty as to the final outcome here. Greece has until the end of this month to come to an agreement, as that is when the ECB deal rolls. The likelihood is that there will be some kind of muddle through, but it will put a damper on risk taking until it is resolved. Attention will also refocus on the US economy and whether the second quarter shows signs of a rebound. If there is further traction on the economy and unemployment, expectations of a first interest rate rise in September will begin to increase. This will put pressure on US Treasury yields and the dollar could also strengthen, which would have some implications for emerging-market volatility if capital flows back to the US.

What are the main risks, either upside or downside, to the outlook?

The upside would be that Greece is finally resolved. This would make risk rally in Europe, and so the upside would be in peripheral bonds and a huge rally in Greece. The downside to the view would be that Greece defaults, which would result in government bonds rallying and risk selling off. It would also put pressure on yields in the GCC, where oil is a big swing factor for sentiment.

What is the best investment at the moment?

We still like some parts of US high yield, particularly the more interest-rate insensitive areas. The note of caution here is that with yields generally low and summer approaching there could be increased volatility as a result of less liquidity.

What was the best investment you were ever involved in?

We owned a US high-yield health care company with a double-digit coupon that was trading well below par. The investment resulted in a series of good quarterly results plus the bonds being called and replaced with bank debt. The total return of the investment was significant over a year’s holding period.

What was the worst?

A US metals company. We bought into a new management team that would lower the cost of production and produce enough free cash flow to redeem the bonds at the next call date. The management team instead continued to miss its targets, and so we exited the position essentially flat to where we purchased the bonds six months earlier but with a small coupon return.

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Trader profile: Global bonds hang on Greece

Name: Andrew Lake

Position: head of fixed income at Mirabaud Asset Management

Experience: 19 years

Based: London

What asset class and geography are you are focused on?

I am a fixed-income portfolio manager and focus on the entire range of fixed income investments, from government bonds to high yield. Because of the fund strategies that I manage, I have no real constrictions as to what I focus on from a geographical perspective, just what I consider to be the best investment opportunities globally.

What is the outlook for the month ahead?

We will continue to see bouts of volatility, particularly given that yields are so low in most areas of fixed income, except perhaps high-yield. While I think that the move lower in the [German] Bund is over for now and we could see some consolidation and even tightening over the short term, there are a couple of key events that could drive markets either way. With regards to Greece and the IMF payments, there is still a great deal of uncertainty as to the final outcome here. Greece has until the end of this month to come to an agreement, as that is when the ECB deal rolls. The likelihood is that there will be some kind of muddle through, but it will put a damper on risk taking until it is resolved. Attention will also refocus on the US economy and whether the second quarter shows signs of a rebound. If there is further traction on the economy and unemployment, expectations of a first interest rate rise in September will begin to increase. This will put pressure on US Treasury yields and the dollar could also strengthen, which would have some implications for emerging-market volatility if capital flows back to the US.

What are the main risks, either upside or downside, to the outlook?

The upside would be that Greece is finally resolved. This would make risk rally in Europe, and so the upside would be in peripheral bonds and a huge rally in Greece. The downside to the view would be that Greece defaults, which would result in government bonds rallying and risk selling off. It would also put pressure on yields in the GCC, where oil is a big swing factor for sentiment.

What is the best investment at the moment?

We still like some parts of US high yield, particularly the more interest-rate insensitive areas. The note of caution here is that with yields generally low and summer approaching there could be increased volatility as a result of less liquidity.

What was the best investment you were ever involved in?

We owned a US high-yield health care company with a double-digit coupon that was trading well below par. The investment resulted in a series of good quarterly results plus the bonds being called and replaced with bank debt. The total return of the investment was significant over a year’s holding period.

What was the worst?

A US metals company. We bought into a new management team that would lower the cost of production and produce enough free cash flow to redeem the bonds at the next call date. The management team instead continued to miss its targets, and so we exited the position essentially flat to where we purchased the bonds six months earlier but with a small coupon return.

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Name: Puneet Pal

Position: head of fixed income at BNP Paribas Mutual Fund

Based: Mumbai

Years trading: 14

What asset class and geography are you focused on?

As of now we are focused only on the Indian fixed income markets. However, we do an in-depth analysis of macroeconomic conditions worldwide as all the markets are interdependent and linked with each other. We also track the emerging market space quite closely, since India, as a major player, is affected by events in emerging markets.

What is the outlook for the month ahead?

In terms of the Indian fixed income markets, we expect a 25 basis point rate cut during the Reserve Bank of India’s policy review meeting on June 2 as the consumer price index inflation cools off and wholesale price index inflation remains in negative territory for the fourth consecutive month. Overall for this calendar year we expect the repo rate will be cut by 50 basis points and expect it at 7 per cent by December. We also expect the rupee to outperform other emerging market currencies and be relatively stable, trading in the range of 62-64 versus the US dollar throughout the year.

What are the main risks, either upside or downside, to the outlook?

Any sharp increase in commodity prices can pose a risk to our outlook of further rate cuts. Any undue market volatility on account of the expected hike in rate by the US Federal Reserve could also be negative. A further deceleration in the CPI inflation below expectations will strengthen the case for a rate cut. Domestically, the monsoon will be a key event to watch out for. Food inflation depends directly on the rains, and since the food weighting is almost 40 per cent of the CPI basket the rains will play a critical part in shaping the outlook for the months ahead.

What is the best investment at the moment?

The best investment will be in the dynamic bond fund category, as it has the potential to deliver good returns over the next year. The potential for rate cuts remains very high and duration funds do well in a rate-cutting cycle, at the same time retaining the flexibility to alter their duration profile when market fundamentals change.

What was the best investment you were ever involved in?

The best investment was when we reduced the duration of our portfolios in July 2013 in response to the tapering concerns of the US Fed, when the whole emerging market space got sold off and Indian yields went above 9 per cent in response to the currency weakness. We again went overweight on duration as the currency stabilised and yields became attractive from a long-term perspective, thus resulting in a significant outperformance with our peers and the benchmark.

What was the worst?

An investment in Indian real estate securities just before the global financial crisis of 2008 could be considered as one of the worst investment decision that was taken in my previous organisation.

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Name: Puneet Pal

Position: head of fixed income at BNP Paribas Mutual Fund

Based: Mumbai

Years trading: 14

What asset class and geography are you focused on?

As of now we are focused only on the Indian fixed income markets. However, we do an in-depth analysis of macroeconomic conditions worldwide as all the markets are interdependent and linked with each other. We also track the emerging market space quite closely, since India, as a major player, is affected by events in emerging markets.

What is the outlook for the month ahead?

In terms of the Indian fixed income markets, we expect a 25 basis point rate cut during the Reserve Bank of India’s policy review meeting on June 2 as the consumer price index inflation cools off and wholesale price index inflation remains in negative territory for the fourth consecutive month. Overall for this calendar year we expect the repo rate will be cut by 50 basis points and expect it at 7 per cent by December. We also expect the rupee to outperform other emerging market currencies and be relatively stable, trading in the range of 62-64 versus the US dollar throughout the year.

What are the main risks, either upside or downside, to the outlook?

Any sharp increase in commodity prices can pose a risk to our outlook of further rate cuts. Any undue market volatility on account of the expected hike in rate by the US Federal Reserve could also be negative. A further deceleration in the CPI inflation below expectations will strengthen the case for a rate cut. Domestically, the monsoon will be a key event to watch out for. Food inflation depends directly on the rains, and since the food weighting is almost 40 per cent of the CPI basket the rains will play a critical part in shaping the outlook for the months ahead.

What is the best investment at the moment?

The best investment will be in the dynamic bond fund category, as it has the potential to deliver good returns over the next year. The potential for rate cuts remains very high and duration funds do well in a rate-cutting cycle, at the same time retaining the flexibility to alter their duration profile when market fundamentals change.

What was the best investment you were ever involved in?

The best investment was when we reduced the duration of our portfolios in July 2013 in response to the tapering concerns of the US Fed, when the whole emerging market space got sold off and Indian yields went above 9 per cent in response to the currency weakness. We again went overweight on duration as the currency stabilised and yields became attractive from a long-term perspective, thus resulting in a significant outperformance with our peers and the benchmark.

What was the worst?

An investment in Indian real estate securities just before the global financial crisis of 2008 could be considered as one of the worst investment decision that was taken in my previous organisation.

siyer@thenational.ae

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The Abu Dhabi-based chemicals producer Gulf Fluor plans to spend Dh1 billion to expand capacity and add new products.

“The expansion will take at least seven years to complete as it takes a long time for feasibility studies, engineering and construction of such a project,” Owaida Al Khaili, the chairman said yesterday. He was speaking during the inauguration of the company’s aluminium fluoride plant in Industrial City Abu Dhabi (Icad).

“We have been thinking about the expansion since day one. Our intention is to put Abu Dhabi on the map of leading chemicals producers.”

The expansion will focus on downstream products that are widely used in refrigeration and cooling applications and other industries.

Gulf Fluor’s Dh1.5 billion complex has capacity to produce 60,000 tonnes per year of aluminium fluoride, which is an important additive used in the production of aluminium.

It is the largest producer of aluminium fluoride by capacity in the region and the fifth-largest globally.

The company has a ready-made market for the product in the GCC, which practically imports all of its requirements estimated at 70,000 tonnes per year. This is expected to rise to 110,000 tonnes a year by 2020.

Mr Al Khaili said that Emirates Global Aluminium (EGA), owned jointly by Mubadala and the Investment Corporation of Dubai, is its biggest client and it has also been exporting nearly 25 per cent of its production to smelters in Oman, Qatar and Bahrain.

EGA said this month that it expects its aluminium production to remain steady for the next three years at 2.4 million tonnes annually.

Gulf Fluor’s plant also has capacity to produce 140,000 tonnes per year of sulphuric acid and 54,000 tonnes per year of hydrofluoric acid, which are used in a range of sectors.

Ali Al Mansouri, the chairman of the Higher Corporation for Specialised Economic Zones, or ZonesCorp, which oversees Icad, said: “The opening of this new complex is in line with the strategy and vision of the Abu Dhabi government and Zones-Corp, to achieve greater economic diversification.”

The industrial zone on the outskirts of Abu Dhabi is home to light to medium manufacturing, engineering and processing industries.

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Name: Christiane Nasr

Position: Senior investment adviser for the Middle East at Crédit Agricole Private Banking

Years in the investment industry: 9

Based: Dubai

What is the asset class and geography you are focused on?

I am a multi-asset investment adviser with a focus on fixed income markets in the GCC and Asia.

What is the outlook for the month ahead?

Global economic activity rose at the fastest pace for six months in March. The continuing expansion could lead to the markets being positively surprised by a large rebound in the second-quarter GDP in the US. We continue to expect the US to grow twice as fast as Europe; Japan and Europe to grow at a similar pace; Switzerland to match German GDP; Brazil and Russia to face outright recession and India to grow faster than China.

What are the main risks, either upside or downside, to the outlook?

The main current risk factor is the possibility of a Greek exit from the euro zone, thus the dollar remains a buy-on-dips against the backdrop of a Fed rate hike at the year-end. The prevailing volatility arising from the Grexit fears is providing us an opportunity to build attractive entry points in European corporate bonds and to move down the rating spectrum selectively, maintaining our long B versus BB trading bias in Europe. Emerging markets bonds are also benefiting from supportive technicals because of a likely delay in US Federal Reserve rate hike expectations until December. We are neutral on Middle East corporate bonds which have been lagging the broader rally but are showing signs of a stable upwards trajectory since the beginning of the year despite the swings in oil prices.

What is the best investment at the moment?

European indexes are among the world’s best performers so far this year because of the massive quantitative easing programme introduced by the European Central Bank. One lagging sector since the bottom of 2011 is the European banking sector, giving a total return of 19.11 per cent (since the bottom of 2011) against 74.89 per cent for the broader Euro Stoxx 600 Index. This trend has been reversing in the last few weeks as the QE seems to be working well and the banks are finally starting to lend to consumers and smaller enterprises. The latest TLTRO [long term refinancing operation] showed that European banks borrowed €100 billion. This is a fantastic growth driver for the sector which continues to trade with a large discount versus its historical average (0.9x price/book versus 2x in 2007) while the return on equity is finally picking up after many years of negative or zero returns. Now that the banks have cleaned their balance sheets and started to have excess capital, shareholders’ returns will be a priority in the coming years.

What was the best investment you have been involved in?

The biotech sector has given a tremendous performance over the past five years, and we tend to believe the bull market is far from over. We started to actively recommend the sector in July 2013 and since it has returned 113 per cent up to now.

What was the worst?

We adopted a cautious approach when it came to reducing our exposure to the mid-to-long end of the curve in anticipation that the 10-year US Treasury would rise to a more sustainable low-to-mid 2 per cent level. This prudent rationale has been translated into our approach to reduce duration in bonds portfolios and focus only on the short end of the US bond curve. This careful move has led us to miss some rally in the long maturity bonds as the 10-year US Treasury yield went down to as low as 1.63 per cent this year.

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Cricket fans in the UAE were sent wild by the appearance of Indian legend Sachin Tendulkar in Abu Dhabi.

Tendulkar, the highest run-scorer in Test history, was on hand to open Aster DM Healthcare’s 150th pharmacy.

The Dubai-based company announced that it will launch its initial public offering in the third of fourth quarter of this year.

“Mumbai and London, these are the two places we are looking at,” said Dr Azad Moopen, the managing director and chairman, at the opening yesterday in Abu Dhabi of the 150th Aster Pharmacy location worldwide. “We are yet to file the papers, which will be done in the next two to three months.”

He did not rule out a listing of its shares in Dubai.

Dr Moopen did not provide details about the company’s potential valuation or the size of the IPO.

Should Aster list on the London Stock Exchange, it would follow in the footsteps of two Abu Dhabi-based healthcare providers – NMC Health and Al Noor Hospitals Group.

Aster, privately held for now, posted revenues of about US$600 million for last year, with nearly 90 per cent coming from its GCC operations. The UAE is its biggest market and the largest growth comes from Dubai.

On the company’s expansion plans, Dr Moopen said that a 75-bed hospital is being planned for Musaffah and should be ready in a year and half.

Two hospitals under its upmarket Medcare brand are set to open in Sharjah and Dubai this year. Work has also started on a hospital in Qatar, which is also scheduled to open in 18 months’ time.

Spending on health care across the region is expected to hit $60 billion by 2025, according to McKinsey & Co estimates, from about $12bn in 2006.

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Abu Dhabi’s new cruise terminal is set to become operational by the end of the year.

The terminal will be capable of handling 2,500 passengers and three ships simultaneously.

“Work is progressing in full swing and we are aiming for an end-of-2015 finish to coincide with home porting plans of Royal Caribbean to base one of its Celebrity Cruise vessels at Zayed Port for the 2016-17 season,” said Mohamed Juma Al Shamisi, the chief executive of Abu Dhabi Ports Company (ADPC).

The ports developer is in talks with cruise lines to use Zayed Port as their home base for the next cruise season.

“We are negotiating with some of them and hope to make an announcement very soon,” said Mr Al Shamisi. “We are working closely with all stakeholders involved, including Abu Dhabi Tourism and Culture Authority and Etihad Airways, to make this happen.”

The next cruise season will also involve a stopover at Sir Bani Yas Island. ADPC is in the process of finalising a dedicated beach with various facilities, he said.

The plans for the cruise terminal were announced at the Seatrade Med cruise trade show in September.

The terminal’s design was selected from a shortlist of five architectural companies. The British company BDP was the eventual winner.

“The architectural guidelines for the cruise terminal included that the design retain the heritage and identity of Zayed Port. It was also meant to bring out the cultural aspect of Abu Dhabi since it will be right opposite the Louvre on Saadiyat,” Mr Al Shamisi said.

This meant converting an old 8,000 square metre warehouse into a state-of-the-art complex comprising space for processing cruise passengers, customs facilities and retail space.

The construction work has been split into three phases. Work on strengthening the outer steel frame and a new mezzanine floor started in January and will be completed by April, while work on the cladding and facade should be completed by the end of this month.

The third phase involving the interiors is set to begin next month and will coincide with works to build road access, car park and taxi and bus stands.

Although Mr Al Shamisi declined to predict growth in the number of cruise tourists, he said expects to replicate forecasts for the current season.

ADPC projects cruise passenger numbers to grow nearly 50 per cent this season. Zayed Port will receive 185,000 passengers and 94 ships compared with 125,000 passengers from 75 vessels in the previous 2013-14 season.

Separately, Mr Al Shamisi said ADPC expects to complete the transfer of roll-on-roll-off (Roro) ships, which transport wheeled vehicles, from Zayed Port in the capital to Khalifa Port by the end of this month. “More than 90 per cent of our clients have shifted. The transition has been smooth,” he said.

On expectation of Roro growth at Khalifa Port, Mr Al Shamisi said that with yard capacity for 360,000 vehicles a year – nearly three times that of Zayed Port ­– and pre-delivery inspection facilities, it should exceed 25 per cent this year from the 106,071 units last year.

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