Aberdeen Bets Malaysian Bonds Will Benefit From Strength in Chinese Yuan

Aberdeen Asset Management Plc is buying Malaysian ringgit bonds, betting an appreciation in China’s yuan will also boost the value of the Southeast Asian nation’s currency.

“We increased our exposure to Malaysia local-currency bonds because we look at Malaysia as another proxy to play the Chinese renminbi revaluation,” said Kevin Daly, an emerging- market money manager, who helps oversee $525 million in Aberdeen’s Global Emerging-Market Bond Fund.

Aberdeen expects Malaysia to benefit from any gain in the yuan, which is also known as the renminbi, because China is an increasingly important market for its commodities exports such as oil, gas and palm oil.

China loosened its currency peg to the dollar on June 19 when the People’s Bank of China said it will increase “flexibility” of the currency. Between 2005 and 2008, when the yuan was last allowed to trade more freely, the values of the yuan and the ringgit were closely correlated.

“If you look at how much it appreciated between 2005 and 2007, over 20 percent against the dollar, we expect a similar trend over the next few years,” Daly said in an interview in Hong Kong yesterday, referring to the yuan.

Aberdeen’s Global Emerging-Market Bond Fund has grown by $100 million to $525 million in the last 12 months. Money is moving to emerging market bonds amid optimism borrowers there are better placed to weather the financial crisis fallout.

Palm oil exports from Malaysia climbed 1.5 percent in June, with shipments to China jumping 22 percent from May, according to independent cargo surveyor Intertek on June 30. China, as the largest user of cooking oils, accounted for nearly one-third of Malaysia’s palm oil exports last month, Intertek said.

Yuan Revaluation

Chinese authorities had prevented the currency from strengthening against the dollar since July 2008 to help the country’s exporters cope with the credit crisis. The currency appreciated 21 percent in the three years following a managed float against a basket of currencies was introduced in 2005.

China is seeking to let the yuan strengthen gradually to deflect criticism from its trading partners and curb inflation, while protecting a recovery in its exports.

Aberdeen has also added Indonesian corporate and government bonds to its portfolio in recent months, Daly said. Indonesia is rated BB by Standard & Poor’s, the second-highest junk rating.

“There’s a strong case for Indonesia getting to investment grade in the next two-to-three years,” Daly said. With continued stability, improving debt ratios, more foreign direct investment, the rating companies may make that move up,” he said.

To contact the reporter on this story: Shelley Smith in Hong Kong at ssmith118@bloomberg.net

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