Investors should focus on Asia’s local currency debt as China’s slowdown may push neighboring countries to cut rates, according to Pacific Investment Management Co., the manager of the world’s biggest bond fund.
Local-currency bond sales in Asia jumped 25 percent to $188.4 billion this year compared with the same period in 2011, according to data compiled by Bloomberg. Pimco more than doubled its team of portfolio managers and credit analysts in Singapore and Hong Kong to 13 over the past 18 months, Ramin Toloui, the global co-head of emerging markets portfolio management, said in an interview in Singapore on Oct. 16.
“One big reason why Asian local currency bonds are of interest is because of the slowdown in China, which may in turn affect monetary policies in nations it’s closely linked to,” said Toloui, 38. “Asian and global emerging market local-currency sovereign bonds is an asset class where the combination of sluggish macro-economic fundamentals and investor reallocations should benefit performance.”
Fund managers from Aberdeen Asset Management Plc to Western Asset Management Co. are investing in Asian local-currency bonds as central banks in Korea, Pakistan and Thailand trim interest rates to bolster growth. Emerging market bond fund inflows swelled to more than $41 billion this year after reaching a 35-week high in the five-day period to Oct. 10, EPFR Global said in an e-mailed statement Oct. 12.
The pace of expansion in the world’s second-biggest economy slowed for a seventh quarter to 7.4 percent in the three months ending Sept. 30 from a year earlier, the National Bureau of Statistics said in Beijing today.
Dollar-denominated borrowing costs for Asian issuers fell to a record 3.35 percent on Oct. 16, HSBC Holding Plc indexes show. Yields on local-currency bonds were 3.62 percent yesterday after touching a record-low 3.58 percent on July 25.
Investors are “paying more attention to Asian local-currency bonds because they’ve rallied less than U.S. dollar securities,” Toloui said. Newport Beach, California-based Pimco had $1.82 trillion under management as at the end of June.
The Singapore dollar, Philippine peso and South Korean won are among the 10 best-performing emerging market currencies in the past year, Bloomberg-compiled data show. Western Asset increased its holdings of South Korean bonds above the level suggested by the benchmark it tracks as the nation’s fiscal health improved, Chia-Liang Lian, head of investment management for Asia excluding Japan, said in an interview last week.
Aberdeen favors Philippine and Indonesian local-currency bonds because of their high yields, Anthony Michael, the firm’s head of Asian fixed-income, said on Oct. 15 at a forum organized by the Trade Association for the Emerging Markets in Singapore.
Pimco is also expanding headcount in emerging markets outside of Asia, setting up its first office in Latin America with a planned team of about 15 in Rio de Janeiro, Alec Kersman, a senior vice president and head of Latin America and Caribbean operations, said earlier this month.
Pimco began operations in Asia in 1996 and has offices in Hong Kong, Singapore and Japan. Asia accounts for more than 10 percent of the company’s third-party assets as of June. Toloui relocated to Pimco’s Singapore office from California in January.
“You need to have the resources in Asia not only to find the attractive assets but also to establish relationships with key pools of capital,” Toloui said. “For any global asset manager, that’s critical.”