LTP Trade Finance IndexÖ - April performance update

The LTP Trade Finance IndexÖá - the independent total return index covering the trade finance asset class - delivered a strong result in April 2002: in fact, the best monthly performance since September 2001. As in September however this excellent performance said more about dollar interest rates than it did about the secondary market for trade finance assets.

US Dollar interest rates tightened by 37 basis points in April - delivering a capital return - but the Index credit margin barely moved: from 172 basis points at end March to 173 basis points a month later. Whilst some investors might welcome a period of stability after a roller coaster ride in all fixed income markets throughout 2001, we at LTP were hoping for a steady tightening in credit margins as the world economy begins to recover.

Looking forward, we expect credit margins to continue to fall South Korea, Mexico, and quite possibly in China too on stronger growth and prospects for further upgrades in sovereign credit ratings. Brazil - another key component of the Index - may see wider margins however, a reaction to the recent loss of confidence in both the equity and bond markets. Investors in all Brazilian assets are increasingly nervous about the prospects of a strong showing by Lula and the left-leaning PT in the October elections. Markets - including that for trade paper - are likely to remain jittery until the end of the year.

In the "higher-yield" jurisdictions we have already noted spread tightening in Turkey, and remain optimistic about the prospects for capital gains in Russia as investor perception catches up with progress made in the real economy. As for Argentina, post-default now just a small proportion of the overall Index, investors are currently trying to recover and restructure existing deals: there is no evidence of new, "voluntary" lending.

The following table breaks down performance between capital appreciation and interest accrual - (note that, because of compounding effects, the constituents may not sum to the total).