Hwang Investment Management Bhd., Malaysia’s fourth-largest asset manager, prefers bonds issued by Asian lenders from Malayan Banking Bhd. to DBS Group Holdings Ltd. as regional economies lead a global recovery.
The company plans to reduce the average maturity of its holdings in 2013 to about four years from six on prospects Asian policy makers will switch their focus to containing inflation over spurring growth, Esther Teo, the head of fixed income, said in a Jan. 7 interview.
“The fundamentals of Asian banks are pretty solid,” said Kuala Lumpur-based Teo, whose company manages $6.2 billion in bonds and equities. “We saw a lot of rate cuts last year within the region and we think a lot of the central banks will now be neutral or toward the end of the rate-cut cycle.”
Inflation may accelerate to 3.97 percent in the region this year and 4.11 percent in 2014, from an estimated 3.37 percent in 2012, according to median estimates of economists in Bloomberg surveys. Asia’s developing nations will expand 7.2 percent in 2013, double the 3.6 percent pace for the world, International Monetary Fund estimates published in October showed.
Asian bonds returned 8.9 percent in 2012, compared with 5 percent the previous year, according to a local-currency index compiled by HSBC Holdings Plc. German 10-year bunds gave a 28 percent loss, while similar-maturity U.K. gilts declined 7.6 percent, data compiled by Bloomberg show.
Hwang also favors bonds from Singapore’s United Overseas Bank Ltd., Australia’s Westpac Banking Corp. and Malaysia’s RHB Capital Bhd. in 2013, Teo said. Fitch Ratings said in a December report that the rating outlook for lenders in the Asia-Pacific region is stable as rising earnings and capital increased their ability to handle external shocks.
Malayan Banking, or Maybank, posted net income of $1.8 billion in 2012, compared with $1.4 billion in 2011, according to the average estimate of 26 analysts surveyed by Bloomberg. DBS’ profit rose 17 percent to $2.8 billion in 2012 from 2011, a separate survey of 24 analysts showed.
Money printing by central banks in Europe, the U.S. and Japan has boosted inflows into emerging markets over the past year, threatening to reignite inflation. Developing-nation bond funds accounted for more than half of the net $2.29 billion invested in global debt during the week ended Jan. 2, according to a Jan. 4 statement from U.S.-based research firm EPFR Global.
Price increases in Singapore slowed to 3.6 percent as of November, compared with 5.5 percent in December 2011, while Malaysia had the lowest rate in Southeast Asia of 1.3 percent.
Lam Chee Mun, a fund manager at TA Investment Management Bhd. in Kuala Lumpur, says Asian central banks won’t be in any rush to increase interest rates until they see more evidence that the economic slowdown is coming to an end, particularly in China and the U.S.
“Until the global economy shows firmer signs of recovery, inflation won’t be such a concern,” Lam, who oversees about $215 million of assets, said in an interview yesterday. “So investors wouldn’t go too short in bond duration for now.”
Hwang Investment’s flagship Select Bond Fund returned 11.2 percent in 2012, beating 92 percent of its 67 Malaysian peers, who posted an average gain of 4.4 percent, data compiled by Bloomberg show. Westpac Banking was among the fund’s top 10 debt holdings as of November, with the banking sector accounting for 29.8 percent of the total allocation, according to a statement on its website.
Asian banks have shored up their finances since the regional crisis in 1997, which was triggered by the devaluation of the Thai baht, and they are now more prudent with lending, Teo said.
Net income from Malayan Banking, Malaysia’s biggest lender, fell to $37.7 million in 1998 from $1.2 billion the previous year, while profit at DBS, Singapore’s biggest bank by assets, dropped 77 percent to $67 million, according to data compiled by Bloomberg.
“Asian credits are something that global investors are still under-invested in,” Teo said. “We have seen a lot of flows into Asian bonds.”