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Amundi HK set to launch FMP

How are fixed maturity products vulnerable during extreme global market turmoil?
Face to face of US dollar banknote and China Yuan banknote for 2 biggest economic in the world which now United states of America and China have war trade.Both countries conflict increase tariff tax.

Authorisation by the Securities and Futures Commission (SFC) for the fund comes a few days after EFG Asset Management received the go-ahead from the SFC to launch its New Capital Wealthy Nations Fixed Maturity Bond Fund 2024.

The Amundi HK – Asian Bond Fixed Maturity Fund 2023 will be launched in Hong Kong and can be sold to retail investors.

FMPs gained popularity among global investors last year on expectations of falling US interest rates and bond yields, precipitating a search for products that could generate a reliable source of income for a specified time period.

They typically deploy a “buy and maintain” approach to avoid re-investment risk, and aim to provide future cash flow security, offer low volatility and mitigate interest rate risk. But income, returns and capital are typically neither guaranteed nor protected.

Credit deterioration

Although no FMP managers have sounded an alarm so far, the biggest concern for investors will be the prospect of a pick-up corporate bond defaults. A global recession, poor market liquidity and surging borrowing costs might threaten corporate solvency and cash flow.

For instance, earlier this week, Moody’s Investors Services noted that in the years following the global financial crisis to 2019, the volume of outstanding corporate debt issued by companies in Asia-Pacific doubled to $32trn.

The cash-crunch sparked by the Covid-19 pandemic might lead to a surge in bankruptcies across sectors, the ratings agency warned.

US high yield spreads have spiked to over 900 basis points (bps) and emerging market yields have widened to 650bps, according to a recent note by UBS Global Wealth Management.

However, rather than signalling terminal credit deterioration, these yield levels might provide a buying opportunity, argued Mark Haefele, UBS Global Wealth Management’s chief investment officer.

For instance,”entering the [US high yield] asset class historically at these levels has been attractive — over the course of the next year, investors in 18 out of 20 instances have made money, with a median return of 28%,” he wrote.

About 15 FMPs incepted from 1 January 2019 to the end of January 2020, and available to Hong Kong or Singapore investors, gathered assets of $500m or more, FE Fundinfo data shows.

The top asset gatherers were a FMP from Credit Suisse, which attracted slightly more than $2bn in assets 13 months after launch, and a $1.5bn UBS FMP.

Indosuez, which owns 70% of Amundi, partnered with the asset manager in July last year, to launch a FMP with a portfolio comprised of  40-50 investment grade bonds with a 4% quarterly distribution.

Other issuers include Eastspring, HSBC, Hang Seng and Invesco.

Moreover, during the second half of the year, FMPs increasingly focused on specific segments of the fixed income market, such as emerging markets and corporate debt, in order to differentiate themselves and tap into higher yields. For instance, seven Hong Kong FMPs launched in 2019 invested only in Asia bonds, according to data from the SFC.

Asia focus

FMPs selling in Asia, especially in Hong Kong and Singapore, shifted their investment focus to Asia and emerging market bonds because the asset class has offered better yields compared to developed market bonds, according to a report from Boston-based consultancy firm Cerulli Associates.

Two weeks ago, fixed income fund managers at six global asset managers told FSA that many dollar-denominated Asia corporate bonds offered value across the credit spectrum.

Yet, Asia sovereign local currency debt might be a better option.

Yields on sovereign bonds across most major Asian economies will fall further over the coming year, after already dropping sharply following emergency interest rate cuts by central banks to counter the Covid-19 hit, according to a Reuters poll of 12 fixed income strategists.

A recent surge in yields, as traders sold sovereign bonds to raise cash, provides a good entry point for investors in China, India, South Korea, Indonesia, Thailand, Malaysia and Singapore sovereign bonds, they suggested.


Part of the Mark Allen Group.