Business & Finance
Business and Finance
Business and Finance
Thu, July 1, 2010
Wed, June 30, 2010 
NEW YORK--([ BUSINESS WIRE ])--Global High Income Fund Inc. (the "Fund") (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.
Fund Commentary for the month of May 2010 from UBS Global Asset Management (Americas) Inc. (aUBS Global AMa), the Funda™s investment advisor
Market Review
Emerging markets posted lackluster results for the month. Investors experienced an increase in risk aversion and a flight to quality, triggered by the financial crisis in Greece and other South Eastern European countries. Also, fears regarding the stability of the euro (EUR) and the ability of the Euro-zone to handle the crisis added some selling pressure to all credit markets.
Spreads of US dollar (USD) denominated emerging markets (EM) bonds widened in May, while the US Treasury market reacted on economic and political difficulties and yields declined. From a regional USD debt perspective, Latin America was hit the hardest by spread widening, while Asia clearly outperformed the market. (aSpreadsa refer to differences between the yields paid on US Treasury bonds and other types of debt, such as emerging market bonds.)
Local markets were weaker in May as well and posted a negative return of 4.34%. (aLocal marketsa refers to debt denominated in a local currency other than the USD.) Local market currencies detracted 4.67%, cancelling out the slightly positive contribution from local market debt exposure. 1 The significant depreciation of local currencies should be seen in conjunction with the global risk aversion and is in large part a result of selling waves, specifically in equity markets. In terms of local currency depreciations, Hungary and Poland suffered most and posted double digit losses of 11% due in large part to EUR related fears.
Performance Review
The Fund underperformed its benchmark, the Global High Income Fund Index2, on a net asset value return basis, in May. In general, returns from investments in high beta USD debt (that is US dollar denominated debt issued by high beta countries such as Venezuela, Argentina and Pakistan), as well as the overweight in local currencies detracted from overall performance. Overweight positions versus the benchmark in Venezuela and Ecuador debt detracted, while Qatar investments performed in line with the market. Local yield exposure was neutral in terms of performance this month, while local currency overweight exposure (specifically in the Philippine peso, Mexican peso and South Korean won) contributed to negative returns. Underweight currency positions in the Polish zloty and the Hungarian forint supported Fund performance.
Outlook
For emerging economies, we expect stronger growth rates and thus an increase in growth differentials between EM countries and developed markets. The share of global growth coming from emerging economies has already reached pre-crisis levels, and we expect it to increase further. With these two factors in mind, we believe EM economies should become much more important in a global context and could take the lead in economic terms in the future.
Recent volatility and risk aversion were triggered in large part by deteriorating fundamentals in developed countries. After the recent widening, US dollar denominated sovereign debt has started to look attractive again, comparable to the underlying risk and taking the robust economic and fiscal environment of emerging markets countries into account.
Longer term, when investors are no longer primarily driven by risk aversion, we believe that spreads may be supported by renewed investment interest and high liquidity. Emerging currencies may again face appreciation pressure due to strong economic developments in EM countries.
Disclaimers Regarding Fund Commentary - The Fund Commentary is intended to assist shareholders in understanding how the Fund performed during the month noted.Views and opinions were current as of the date of this press release.They are not guarantees of performance or investment results and should not be taken as investment advice.Investment decisions reflect a variety of factors, and the Fund and UBS Global AM reserve the right to change views about individual securities, sectors and markets at any time.As a result, the views expressed should not be relied upon as a forecast of the Funda™s future investment intent.
1 As measured by the J.P. Morgan Government Bond Index-Emerging Markets Global Diversified (GBI-EM Global Diversified)
2 Global High Income Fund Index is an unmanaged index compiled by the advisor, currently constructed as follows: 50% J.P. Morgan Emerging Markets Bond Index Global (EMBI Global) and 50% J.P. Morgan Government Bond Index-Emerging Markets Global Diversified (GBI-EM Global Diversified). Investors should note that indices do not reflect the deduction of fees and expenses.
