Kumar Palghat, Kapstream’s founder and Pacific Investment Management Co.’s former head of portfolio management in the Asia-Pacific region, said he’s boosted Australian investments to 80 percent of the fund’s $4 billion under management over the past month, up from 60 percent. Cash-like holdings increased to 25 percent from 5 percent, and the fund owns the debt of Australia’s four largest lenders and AAA-rated mortgage-backed securities.
“Short-term event risks are high, and therefore the first thing you’d do is have a home-country bias, so we’ve sold quite a bit of the assets that we had overseas and we’re moving our assets back to Australia,” Sydney-based Palghat said in an interview yesterday. “You’re back to protecting capital.”
European leaders are struggling to convince investors that they will agree on a second Greek bailout at a summit this week as record bond yields threaten to boost financing costs. The U.S. government says it has until Aug. 2 before its ability to pay its debt expires, while Republican and Democrat leaders remain divided on an agreement to raise the $14.3 trillion debt ceiling.
Australia’s benchmark 10-year bond yield fell to as low as 4.88 percent yesterday, the least since Sept. 8, and was at 4.93 percent as of 10:04 a.m. in Sydney. The yield is headed for the biggest monthly decline since August 2010.
Bank, State Bonds
Australia’s government bonds have gained 6.4 percent this year, including reinvested interest, the best return along with New Zealand among 20 developed markets tracked by Bank of America Merrill Lynch indexes. Financial bonds in Australian dollars have gained 6.4 percent as well, while state-government debt returned 6.5 percent, separate indexes show.
“You’re better off having home-country exposure to domestic institutions, local banks and local governments because fiscally Australia is a much better place to be,” Palghat said.
Australia’s four largest banks, all rated AA by Standard & Poor’s, didn’t receive bailouts during the financial crisis that worsened after the collapse of Lehman Brothers Holdings Inc. in 2008, unlike lenders in the U.S., U.K. and Europe. The banks are Commonwealth Bank of Australia, Westpac Banking Corp., Australia & New Zealand Banking Group Ltd., and National Australia Bank Ltd.
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