Norvik EM High Yield Bond value lost 2.28% last week suffering from “risk-off” mentality and general weakness in emerging markets. Principal cause of sell-off was a contagion from Turkey. After his re-election Turkish president Erdogan changed his government’s economy team and reduced the independence of Turkey’s Central Bank. In addition to that, Turkish courts are refusing to drop charges against an American pastor who is accused of supporting 2016 coup attempt. As a result of that refusal US government has increased Turkish metal import tariffs and introduced personal sanctions against several Turkish officials. Markets expected that overheating Turkish economy and weakening Turkish lira would result in Turkish Central bank raising lira interest rates. Instead, the only recent reaction from Turkish officials was tightening of limits to fund short lira FX positions, general rhetoric against higher interest rates and calls for Turkish citizens to exchange USD, EUR and gold for lira, which may have caused additional panic among market participants and general population. USD/TRL rate spiked from 4.8 in July to a high of 7.13 on Monday 13 August and somehow recovered to 6.15 by Friday, 17 August after Qatar announced that it will invest 15 bn USD in Turkey. But there are risks that US Turkish and also Russian sanctions may be increased potentially resulting in a further market weakness.

As a result, most emerging markets assets suffered. Although we do not own any Turkish and Russian bonds at the moment our other holdings suffered. The biggest loser was Eximuk 16.5 03/21 in UAH which is 6 points lower (ytm 23%) with USD/UAH exchange rate suffering as well – moving to 27.75 (from 26.45 a month ago). Ukraine 32, Ivory Coast 33 and Argent 01/28 were 3-3.5 points lower. Ecuador 28 – 2 points lower.

Fund Performance %
1 Day -0.15%
1 Week -2.28%
1 Month -2.47%
3 Month -2.68%
6 Month -4.62%
2018 Year to date -5.24%
1 Year +0.04%

Since inception 12.07.2017 +3.21% (2.92% annualized act/act)