Astronomical and growing government debt is likely to remain a key concern in Europe and the United States throughout most of 2010. Conversely, Asia’s economies have not only remained resilient, but are in fact buoyant. Since the Asian Financial Crisis in 1997-98, Asian countries have been conservative both in borrowing and spending, a sharp contrast to Western nations. Today, the West is not only mired in debt, it must continue spending, further increasing deficits and other government obligations, simply to stave off continued economic weakness. The longer it takes the West to address its massive debt burden, the more rapidly Asia will rise.
Source: ING
But of course, simply investing in Asia will not guarantee success, for with growth comes growing pains.
While Asia is home to 60% of the world’s population, the GDP contribution is only 20%. Given the rapid pace of economic growth in the region, it is obvious that economic power is shifting to Asia, and that in the years to come, Asia will occupy a much more prominent position in the global economy.
Most Asian Countries are slated to grow faster in 2010 than in 2009 or 2008!
Enter the Year of the Tiger
The lunar New Year has started off on cautionary footing. Concerns over sovereign risk from the PIGS (Portugal, Ireland, Greece and Spain), US regulatory legislations, surprise rate hikes, stimulus withdrawals, and tightening policies in China are likely to keep the tiger on edge. Since 2010 will undoubtedly be volatile, we expect to see tremendous divergence in credits where the fundamentals are strong versus those where the fundamentals are not. Now more than ever, proper credit selection is key.
3 Degrees Credit Opportunities Fund (3DCO)
On January 15, 2010, 3DCO launched with US$27.3 million. With over US$20 trillion of loans on the balance sheets of Asian commercial banks, the Asian loan market is large and virtually untapped given the lack of secondary players. With a long operating history in the region, 3 Degrees is ideally positioned to capitalize on this growing, yet highly inefficient, relationship-driven market.
3DCO focuses primarily on the senior secured loans of healthy Asian borrowers. While credit spreads have contracted massively since March 2009, the less liquid Asian bank debt market has yet to participate. In its managed account format, 3DCO has delivered an unlevered, net return of 16.38% between June 15, 2009 and January 15, 2010. Since the fund’s launch in mid January, 3DCO has delivered a 3.68% net return as of February 22, 2010. The Fund targets an annual net return of between 15-20% by investing in mispriced, low duration, performing senior debt.
Best regards,
Moe Ibrahim
