Erste Asset Management

TikTok ban in the USA – Update from the Investment Division

TikTok ban in the USA – Update from the Investment Division
TikTok ban in the USA – Update from the Investment Division
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What’s happened since the weekend?

According to Rolling Stone magazine, the hip-hop song “Nuthin’ But a G Thang” by Dr. Dre and Snoop Doggy Dog is one of the best songs of the genre. In it Dr. Dre raps that his singing is as reliable as a clock: “I told ya I’m just like a clock when i tick and I tock”.

The words Tik and Tok were also the focus of investor attention over the weekend. The Chinese company TikTok, which is a video portal with social network functions, is facing accusations of espionage in some countries (especially the USA). TikTok is accused of passing on its users’ data to Chinese authorities.

US President Trump had already had a ban on the software in the USA examined in July and has now announced a decision to ban it for the beginning of August. In the meantime, the US technology group Microsoft has also come into play and is considering taking over TikTok’s services in the USA, Canada, Australia and New Zealand. According to the news portal Reuters, President Trump Bytedance, the owner of TikTok, has given 45 days to negotiate a sale to Microsoft.

What will we see in the coming days?

High-yield US corporate bonds posted their best month in almost nine years in July. An ICE index rose by about 4.7% during this period. This market is driven in part by the search for higher yields by many market participants.

This is because the support measures of the central banks, and in this case the US Fed in particular, have resulted in yields on bonds with better credit ratings being significantly lower. For example, investment grade corporate bonds in the US have a yield of only 1.92% (source: ICE) and 10-year US government bonds of 0.54%. As a result, the yield of 5.45% that can be achieved on high-yield bonds appears attractive to many investors.

In addition, concerns about a high wave of bankruptcies have also receded in recent months. The US Federal Reserve has also contributed to this by providing liquidity in the markets. Nevertheless, default rates in this segment continue to rise.

We will also continue to monitor these developments closely. In particular, the ratio of yields and credit spreads to expected defaults will determine our positioning in this asset class.


Legal note:
Prognoses are no reliable indicator for future performance.



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