Daiwa SB Investments Ltd. and Daiwa Asset Management Co. are starting inflation-linked funds six months after Pacific Investment Management Co. announced plans to offer Asian investors protection against rising costs.
Daiwa SB will invest in bonds linked to consumer-price changes in the U.S., the U.K., Canada and other nations with liquid markets in the securities, said Kei Katayama, a portfolio manager at the company in Tokyo. The fund may open in the coming months, Katayama said. The Daiwa Asset Japan Inflation Linked Bond Fund (04311139), which began on Sept. 5, focuses on Japanese inflation-linked debt. The companies are part of Daiwa Securities Group Inc. (8601), Japan’s second-largest brokerage.
The Bank of America Merrill Lynch Global Inflation-Linked Government Index fell 4.4 percent this year as of Sept. 23, headed for the first loss since it was set up in 1998, as costs hold in check following the global financial crisis five years ago. Federal Reserve Chairman Ben S. Bernanke and Bank of Japan Governor Haruhiko Kuroda are both pursing unprecedented easing measures to drive faster growth and higher prices. Inflation expectations are rising, Bank of America said.
“There is very extraordinary global monetary policy now and very low inflation,” said Katayama, who helps oversee equivalent of $49.7 billion at Daiwa SB. “There’s an increasing risk of inflation within a few years, and we should be prepared.”
Japanese Prime Minister Shinzo Abe is using fiscal stimulus and a package of growth-oriented initiatives including deregulation to enhance the Bank of Japan’s efforts to end deflation through monetary easing. Gross domestic product expanded an annualized 3.8 percent in the second quarter from the first, higher than an initial estimate of 2.6 percent, the government reported this month.
Abe’s policies are creating demand from investors for protection against inflation, according to Bank of Yokohama, the company marketing Daiwa Asset’s product.
“Due to some positive factors such as Abenomics, expectations for future inflation are getting high in Japan,” Takashi Haraikawa, from the bank’s public relations and corporate social responsibility department, wrote in an e-mail.
Japan plans to resume sales of inflation-linked bonds in October after a five-year hiatus because of falling demand amid deflation in the nation. Australia said today it plans to sell at least A$500 million ($469 million) of inflation-linked notes due in 2035 tomorrow.
The U.S. sold 10-year Treasury Inflation Protected Securities last week, drawing bids for 2.38 times the amount of debt offered. It was the lowest demand in a year.
The Pimco Asian Inflation Strategy Fund will aim to return 2 percentage points to 3 percentage points more than the average consumer price gains in Singapore and Hong Kong, according to Michael Thompson, head of Pimco’s wealth-management group for the region excluding Japan.
The fund won’t be limited to Asian investments. Holdings may include inflation-linked bonds in Brazil or Mexico, gold and property, including shares of real estate investment trusts, Thompson said when he announced plans for the fund six months ago.
Thompson declined to comment when asked how the fund is performing. He referred Bloomberg News to an employee at the company’s office in Hong Kong who declined to give her name or say when fund data will be available.
Over the past decade, the worldwide inflation rate based on average consumer prices was as high as 6 percent in 2008, according to the International Monetary Fund. It has held below 5 percent since then, in the wake of the financial crisis, highlighted by the collapse of Lehman Brothers Holdings Inc. in September 2008, data on the IMF’s website shows.
Consumer-price gains will average less than 4 percent a year through 2018, the IMF projects.
A Bank of America survey of fund managers conducted Sept. 6-12 showed inflation expectations are at the highest level since early 2011. Fifty-five percent of respondents expect higher costs in 12 months, the bank reported Sept. 17.
In the U.S., the world’s largest economy, consumer-price inflation reached an annual rate of 1.5 percent in August. Fed Chairman Bernanke refrained from reducing the central bank’s $85 billion pace of monthly bond buying after a meeting Sept. 18, saying the job market needs to improve.
Bank of Japan Governor Kuroda, trying to end 15 years of deflation, began a bond-purchase program totaling more than 7 trillion yen ($70.9 billion) a month in April. The country’s consumer prices, excluding fresh food, rose at an annual pace of 0.7 percent in July, the fastest pace since 2008.
In China, the second-biggest economy, the inflation rate was 2.6 percent in August.
“Inflation can rise along with a recovery in economic growth,” Daiwa SB’s Katayama said.
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