In terms of our process, Nikko Asset Management’s Global Credit team first quantitatively screens our investment universe of more than 9,000 issuers to reduce it down to a more manageable size. Next, our team of investment professionals fundamentally analyses this smaller universe to select the best opportunities. Our team currently has 19 members, which means that we are well-resourced to cover the global credit markets.
Over the next 12 months, we are quite positive on the performance prospects for global credit. In a recent paper titled ‘What Investment Themes Will Drive Credit Markets?’, we singled out five investment themes which we think offer interesting opportunities for investors going forward.
One theme is the imbalance between supply and demand in the developed markets, particularly Europe. Here we have a central bank which is aggressively buying bonds and this should lift bond prices in these markets and, therefore, we are quite positive on Europe.
Another is the opportunities in the high yield market for investors that are potentially focused on yield. Default rates are still quite low, balance sheets remain healthy and we see a good chance that investors could ‘clip their coupons’ and outperform with high yield bonds as they have done in 2014 and 2015.
We also see opportunities in local currency bonds of corporate issuers in the emerging markets. In addition, we see opportunities in small high rated companies which could potentially become acquisition targets of bigger, better rated companies.
And last but not least, we see opportunities in a broader and more global opportunity set, that is considering the global investment universe rather than just focusing on regional markets alone.
We particularly like a Mexican telecom company and its local currency bonds, peso bonds. We have done our health checks on the credit side and feel that it’s a solid company on the one hand. On the other hand, we are quite positive on the peso and we think there is a good premium to earn on this company’s local currency bonds over its USD and EUR bonds and therefore, we think it’s an interesting opportunity.