Russia’s incursions into the Ukraine have been condemned around the world, have caused a steep sell-off of the Russian rouble and equities and have hurt financial markets in other central and Eastern European markets. However, any measures taken to isolate Russia from the global community will affect European countries more than the US given the former region’s closer economic ties with Russia, and especially given that Europe is only just emerging from recession. Russia has at least taken a step back from the brink by pulling some of its troops back to base and saying that it will only use the military as a last resort. Markets reacted positively but this story has definitely not gone away.

Ukraine’s economic problems remain a concern

While markets believe that the turmoil in Ukraine is unlikely to have broad-based implications for emerging markets (EM), any default in the EM world would prompt negative headlines. Certainly, the confrontation between Ukraine and Russia has distracted investors from a potential EU/IMF rescue deal for Ukraine, where there is a pressing need to address the US$13bn of debts (including obligations from the state-owned gas company Naftogaz), which are due to be repaid this year. Asian markets are not ignoring the possibility that the situation in the Ukraine will deteriorate.

 

Crowded calendar of political events ahead in 2014

Other notable newsflow came from Thailand where more negative headlines were generated by the rice purchasing scheme scandal. The continuing investigation by the anti-corruption body could lead to the Prime Minister being removed from office, while domestic violence continues to affect Bangkok. In addition, the 2014 presidential election in Indonesia has come to life with the incumbent Democratic Party conducting its presidential-nominating convention to boost the popularity of potential candidates such as Dahlan Iskan, the minister of state-owned enterprises. The reformist and current Jakarta governor Joko Widodo of the PDIP is likely to be the front runner if he is put forward as the party’s official contestant. Finally, politics has returned to the centre stage in India where 11 small political parties have joined forces (the up-and-coming, newly-formed AAP, however, is absent) to form a third-front to wrest power from the popular-opposition BJP and the underdog-governing Congress party.

Asia to see a correction?

Lately, the market has faced many “on-the-brink-of” situations. Ukraine appeared on the brink of civil war and Russia’s aggressive intervention in Crimea, and the uncertainty surrounding the Ukraine’s economic and financial position means it is still close to disaster. Meanwhile, the opaqueness of Chinese government policies towards interest rates and currencies means investors are close to resetting their consensus views (especially in terms of the currency) and perhaps resizing their investment allocations to China. Given the challenges facing Europe, China and the US, Asian fixed income markets are likely to experience some form of correction following the robust performance seen in February. We will monitor developments closely and use our active approach to exploit any opportunities created by further volatility.

Commentary by Clifford Lau, Head of Fixed Income, Asia Pacific

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The appointments follow the recently announced restructure of Threadneedle’s Fixed Income team and significantly strengthen the company’s emerging market debt capabilities as well as the depth of the broader global fixed income team.
 
Mr Lau joins Threadneedle from Pramerica Fixed Income, the asset management division of Prudential Financial Inc. He is recognised as one of the leading managers of Asian Fixed Income in the region, and has been voted by Asian institutional magazine The Asset as amongst the Most Astute Asian Bond Investors every year since 2004. Mr Lau was Head of the Singapore office of Pramerica, which he joined in 2000. He had lead management responsibility for approx. US$1.0 billion of Asian fixed income assets. Mr Lau joins Threadneedle on 18 June and will be based in the Singapore office.
 
Mrs Kazaryan joins Threadneedle from G2 Capital Partners LLP (formerly known as Alcantara Asset Management LLP), the emerging markets debt specialist asset manager, where she has worked since 2009, most recently as a Portfolio Manager responsible for a long-only emerging markets fixed income fund.  She joins Threadneedle in London on 2 July.
 
Raymundo Yu, Asia Pacific Chairman at Threadneedle, commented: “Clifford is an outstanding talent and his appointment in this new senior role adds an important dimension to our emerging market capability as well as supporting our growing Asia Pacific business. Clifford brings substantial on-the-ground experience across Asian fixed income sectors, and I look forward to his contribution to the investment team and to our growing Asia Pacific business. His deep experience and understanding of client needs across the region will further enhance our ability to deliver products and performance that meets the long-term needs of investors.
 
Jim Cielinksi, Head of Fixed Income at Threadneedle, commented: “I’m delighted to welcome both Clifford and Zara to Threadneedle. Clifford will bring a new perspective to the investment team and we look forward to his contribution to our culture of open discussion, debate and sharing of ideas. Zara brings in-depth knowledge of local emerging markets and securities, combined with strong macro-economic analysis. Along with that of Clifford, her appointment reflects our continued commitment to building out and strengthening our fixed income capability,” Mr Cielinski said.
 
Threadneedle recently announced changes to the structure of its Fixed Income capability to enhance collaboration and integration across the fixed income platform and to better respond to changing market dynamics. The restructure included the establishment of a Global Macroeconomic Strategy Group to better integrate macroeconomic strategies across developed and emerging markets, consistent with  the company’s view that traditional fixed income boundaries are increasingly less relevant.
 
“Our new approach acknowledges the seismic shift in fixed income markets that has been experienced post the credit crunch, a theme I have discussed extensively with clients over the past year. The new structure recognises that markets are continuing to evolve and it better enables us, as investors, to respond to client needs and to deliver sustainable long-term returns. It is also consistent with Threadneedle’s collaborative investment approach and enables us to fully leverage insights gained from our culture of idea sharing and debate,” Mr Cielinski said.

Threadneedle’s Fixed Income team comprises 42 investment professionals across emerging and developed markets, with specialist expertise in investment grade and high yield credit, government bonds, currencies and commodities. Threadneedle manages over £28.5bn in fixed income assets (as at 31 March 2012).

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