A String Of Pearls For The Adventurous

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A String Of Pearls For The Adventurous
By Century Financial in Investment Insights
This performance is only observed with
historical backtests and not traded by the
company. The product and investment ideas do
not consider the risk profile and financial
position of the recipient and may not be
suitable for everyone. Trading in financial
markets and use of margin involves a significant
risk of loss, which can exceed deposits. Please
read the complete disclaimer carefully. The
announcement of Pfizer's vaccine in the first
week of November has weakened the US Dollar and
triggered demand for more risk assets, especially
emerging markets. More importantly, the string
of vaccine announcements, Moderna followed by
Astra Zeneca, has given rise to hopes that
normalization of global economy might happen by
second quarter of 2021. This makes the bonds of
tourism dependent as well strategically located
island countries, Maldives and Sri Lanka,
interesting for investors.
For a 200,000 lot size For a 200,000 lot size For a 200,000 lot size For a 200,000 lot size For a 200,000 lot size For a 200,000 lot size For a 200,000 lot size For a 200,000 lot size For a 200,000 lot size For a 200,000 lot size For a 200,000 lot size
Ticker ISIN Initia l Marg in Mainten ance Margin Yld to Mt y (Mi d) C pn Matu rity BBG Comp osite Maturit y Type Curre ncy
Republi c of Maldive s Ministr y of Finance and Treasur y Bond MVM OFB XS16175 62290 51,1 00 41,100 24. 57 7 6/7/20 22 CCC AT MATU RITY USD
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Sri Lanka Govern ment Internat ional Bond SRILA N US85227 SAJ50 114, 059 91,247 26. 12 6. 25 7/27/2 021 CCC AT MATU RITY USD
Maldives High Risk, but might scrape
through Maldives has external debt service
obligations beginning from 4Q20 through 2Q22
amounting to USD494 million (of which USD142
million is due in 2021). Reduced tourism receipts
due to the pandemic have greatly pressured the
foreign currency buffers. The government's
sovereign development fund had USD186 million
equivalent of reserves in October, but its
foreign-currency assets have declined to USD54
million. According to the latest data, Foreign
reserve buffers were USD696 million in September,
or USD280 million net of the Maldives Monetary
Authorities' (MMA) short-term foreign-currency
liabilities. Currently, The MMA has drawn USD150
million on a USD 400 million currency swap line
with the Reserve Bank of India, to support
Rufiyaa's peg against the US Dollar. If the
Maldives can access, the 250 million of the
unused currency swap line with India and if it
can get some relief on interest payments (IMF and
G20 already have some plans), it should be able
to scrape through this tough period. Maldivian
bonds are high risk, high return. Bonds expiring
in 2022 are suited for high-risk investors. Sri
Lanka Support expected from bilateral donors Sri
Lanka recently repaid USD 4.2 billion in foreign
debt and avoided sovereign default. Its forex
reserves dropped 807.8 million dollars in October
2020 to 5,578.5 million dollars as the island
repaid sovereign bond. Sri Lanka is about to
receive an injection of around 700 million from
China Development Bank, which will increase
reserves and help improve its loan servicing
capability. The country is supported its
relatively high levels of per capita income and
modest economic competitiveness, that should
enable it to post better than expected growth
rates. Nevertheless, concerns over the
government's capacity to meet its debt-servicing
costs will persist. The country on average has
US 4- 4.5 billion in external debt repayment due
every year from 2021 through 2025. Recently, In
September, Sri Lanka International Sovereign
Bonds (SLISBs) was downgraded from B to Caa1
(stable outlook) by Moody's. Sri Lanka, however,
is expected to secure financial assistance from
the IMF and bilateral donors in 2021-22. The
humongous victory of Sri Lanka Podujana Peramuna
(SLPP), a political party led by Mahinda
Rajapaksa, has improved the political stability
of the country. Moreover, FDI into Sri Lanka is
expected to jump. Sri Lanka's BOI (Board of
Investment) approved a US 24 billion oil
refinery investment which will be done over a
period of 5 years. The geographic location of the
island and its decent infrastructure should
attract global names to Hambantota Free Trade
Zone (FTZ).
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Sri Lanka bonds are suited for investors with a
propensity to take high risk. Risks Assumptions
The strategy might suffer from look-ahead bias
which occurs due to the use of information or
data in a study or simulation that would not have
been known or available during the period being
analyzed. This can lead to inaccurate results in
the study or simulation.
Future price movements may not be exactly the
same as the historical price movements and this
could lead to variation in performance.
Testing can sometimes lead to over-optimization.
This is a condition where performance results
are tuned so high to the past they are no longer
as accurate in the future.
The model assumes no slippages in trading.
Slippage refers to the difference between the
expected price of a trade and the price at which
the trade is actually executed.
Drawdowns in actual trading can be higher than
the tested system and losses could be
significant in the event of leverage.
Unforeseen events can lead to variation in
performance from the tested trading strategy.
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The tested result has been computed with
price feeds available from Bloomberg. The
testing environment has not considered
transaction or any other costs. Trading
indicators used for the purpose of testing has
been provided by Bloomberg. The strategy
might suffer from data mining fallacy, selection
bias and backfill bias.
Data Source Bloomberg
Arun Leslie John Chief Market Analyst Disclaimer
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