Global High Income Dollar Fund Inc. -- Quarterly Commentary.
Global High Income Dollar Fund Inc. (NYSE: GHI) is a non-diversified, closed-end management investment company seeking high current income and secondarily capital appreciation through investments primarily in securities of emerging market debt issuers.
Emerging market debt--as measured by the JP Morgan Emerging Market Bond Index Plus (EMBI+)--returned 1.2% over the third quarter, outperforming developed market debt which gained 0.7% as measured by the SSB World Government Bond Index hedged into U.S. dollars. The EMBI+ returned 3.9% in October versus 0.2% for the SSB Index. The relative outperformance of the EMBI+ was broad-based, with September and October being particularly strong. The lower-rated Latin bond markets (for example, Argentina, Brazil, Colombia and Venezuela) led the rally. This rally seems predicated on the belief that the ongoing world recovery will engender improved exports and fiscal results for Latin America, yet low inflation worldwide will not require enough monetary tightening to draw financing away from Latin American markets.
Year to date as of October 30, 1999, the Fund returned 11.4% based on net asset value (16.8% based on market price) compared to the EMBI+ and Lipper Emerging Market Debt Median returns of 15.6% and 13.4%, respectively. The Fund's relative underperformance to the EMBI+ was primarily due to its underweight position in Russian debt (about 2.6% versus 6.8%), which returned 91.4% year to date through October. (Note: the Fund has maintained an underweight position in Russian debt since inception.)
During the last four months, we further diversified the Fund's holdings by investing in new bonds issued by the Republics of El Salvador, Trinidad and Tobago and Turkey--each of which was priced attractively and traded up after pricing. We remained generally fully invested, and held a small cash position only to facilitate share repurchases under the Fund's buy-back program.
Higher world growth and rising commodity prices (especially oil) should positively impact the balance of payments and fiscal revenues for most emerging market countries. However, a number of key issues remain for the sector:
-- The low political ratings of Brazilian President Cardoso and its
impact on his ability to continue to legislate social security
and fiscal reforms.
-- The Russian government's ability to collect enough taxes to pay
its foreign debt and its willingness to do so.
-- Uncertainty regarding Argentina's ability to continue to roll
over large amounts of external debt in light of export
competitiveness and the economy's inability to correct the
resulting imbalance through currency devaluation because of its
fixed exchange rate.
Presently favorable macro-economic influences are driving debt prices in the sector.
This commentary reflects our views at the time of its writing. These views may change in response to changing circumstances.
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|Date:||Nov 23, 1999|
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