Alexandre is generally optimistic about prevailing global economic conditions, especially for Asia, while he also keeps a watchful eye on the outlook for financial markets. Investors in Asia have fared especially well from fixed income in recent years. A key focus for Alexandre and his team is the ongoing tightening of dollar liquidity, which he notes is already impacting refinancing flows after many years of easy and therefore heavy dollar funding.
“With rising rates as well as tighter global liquidity,” he explains, “funding costs are both more expensive and more restricting. While the current wave of refinancing is taking place in a positive economic environment, we have historically seen pressure building in such situations and that is what we see now, most visibly with countries such as Turkey.”
The result, he explains, will be continuing volatility and more of the vulnerable borrowers exposed to default, with a more negative impact and sentiment for the emerging markets.
Seeking value amidst market volatility
“Nevertheless,” he maintains, “this also represents an opportunity to search out those solid companies whose paper might suffer in sympathy with the general market and which as a result can offer attractive risk-adjusted returns. All in all, I am very optimistic about the opportunities that lie ahead right now.”
He notes that there is some question as to whether the US market will continue to outperform and whether China’s heavy bond issuance and borrowing will weigh down the Asian fixed income market. “We are likely to see a bit less Chinese paper and relatively more from the other countries in this region,” he observes.
Alexandre, therefore, advises a moderate degree of caution but also for investors to keep a watchful eye for relative value opportunities. “We are no longer in a period of easy returns, investors must be more discerning and more careful in their selections," he says. "Rising rates means that some investment-grade paper might drop to high yield due to rating downgrades. However, we still believe in solid fundamentals so this all creates positive opportunities for smart investors.”
Scale back on risk, consolidate towards quality
As a strategy, Alexandre recommends tapering back on high yield exposures and also moving to the shorter end of the maturity spectrum of two to three years. "And we suggest investors migrate more towards well-chosen investment grade and short dated high yield papers; in dollars, such paper is currently offering four to five per cent returns.”
He also believes investors in the region should continue to focus on Asia risk rather than more broadly-based emerging market risk. Asia, he notes, continues to enjoy strong current account surpluses, powerful export momentum and high levels of financial reserves. Moreover, liquidity in the regional financial markets has expanded rapidly, for example, the Asian dollar bond market has surged to around USD800 billion in outstanding issues compared with just USD200 billion in 2010.
Asia remains solid
Additionally, he considers that investors should be buying Asian sovereigns in local currency paper, whereas corporate debt exposure should be bought in US dollars for liquidity and diversification purposes because local-currency Asian corporate debt is relatively less liquid and less accessible.
In all cases, he believes investors should focus on buying through funds in order to secure institutional allocations from new issues, a high degree of credit monitoring and therefore indirectly end up holding a more balanced portfolio of fixed income holdings than they might be able to acquire directly.
Alexandre explains that he and his team remain determined to match investor needs to market conditions and launch or promote investments that neatly blend those two facets. “The timing of the funds we have launched in recent years demonstrates what can be achieved by closely understanding the needs of Asian investors and the market conditions,” he says.
A short history of timeliness
For example, Alexandre recalls that Credit Suisse was in 2016 promoting the broadly diversified 3-year fixed maturity bond strategy, then offering a yield of 4% and raising more than USD3.3 billion from investors within just a few months from its launch in April that year.
Another successful product around that time was the strategy focusing in Asia corporate bonds, which focused on growth of the corporate bond market in the region and was offered with anticipated yields of around five per cent.
Alexandre says Credit Suisse continues to recommend fixed maturity bond strategies as a star solution in the current environment. “With a relatively short time to maturity, people are sheltered in a rising interest rate environment and it remains broadly diversified, thereby reducing the risk of default.” In this context, we recently decided to temporarily re-open a fixed maturity bond fund maturing in 2022 that was launched in September of last year. During the two-months re-opening period, the fund raised more than USD 670mn bringing the total assets of the fund to over USD 1.1 billion. Since the breakthrough launch of the first fixed maturity bond fund two years ago, Credit Suisse has positioned itself as a leading and innovative asset manager, raising a total of USD 7.8 billion across five fixed maturity funds.
Another star product Credit Suisse currently manages is an on-shore China fixed income product launched about a year ago. It has an average rating of single-A, a three-year duration, and expected returns of 5.5% per annum.
Focusing on the future
Alexandre has set himself and his team several key priorities (see box: Alexandre’s Three Priorities for Continued Success). Combined, these three core objectives make one combined mission, namely to service the firm’s clients with the best, most timely and also broadly diversified investment products while expanding the firm's clientele to achieve the balance of an increasingly institutional base.
Finding and retaining the right team members is a continuing and long-term priority for Alexandre. “We have ten in the fixed income team and five in the equity team,” he reports. “We continue to seek out the best talents for the business and we also focus on keeping our existing team members by espousing and maintaining a cooperative and collaborative team ethos.”
Concluding the discussion, Alexandre sums up some of his goals for his Credit Suisse operation. “We want to be known for bringing innovative products to our clients, that is vital in a fast-changing world,” he explains. “We want to deliver performance as well as the quality of service in good and in difficult markets. And we want to be known for our consistency and support of our clients for the longer-term, building on our existing relationships and forging new ones.”