Nikko Bets on Malaysia, Turkey Debt Amid Currency War Concern

Nikko Asset Management Europe Ltd. is buying emerging-market debt from nations including Turkey and Malaysia, betting their growth prospects outweigh the risk of competitive currency devaluations.

The asset manager holds a greater proportion of debt from the countries than the benchmarks it tracks, drawn by higher yields and strong economic outlooks, Chief Investment Officer Stuart Kinnersley said in an interview yesterday in Sydney. The unit of Nikko Asset Management Co., which managed $154 billion as of Dec. 31, also favors Russian and Nigerian bonds, he said.

“Despite the concern about currency wars at present, the fundamentals for many of these economies will remain supportive,” said Kinnersley, whose London-based operation oversees about $15 billion in fixed-income assets. “They’re going to exhibit higher levels of economic growth, they’re going to offer higher yields. I think there’s value there.”

The emerging-market economies known as the BRICS -- Brazil, Russia, India, China and South Africa -- will expand by 6.3 percent in 2013, outstripping the 2.4 percent global average, according to forecasts compiled by Bloomberg. Calls for greater stimulus in the U.S., Japan and Europe have intensified concern over a so-called global currency war that risks debasing exchange rates.

Russia said in January that policies which end up weakening currencies may lead to reciprocal action as nations try to protect their export industries.

The Malaysian ringgit has dropped 2 percent this year, paring its advance since the end of 2008 to 11 percent. The Turkish lira has sunk 31 percent in the past five years.

Brazil Confusion

The yield on 10-year government debt in Turkey averaged 7.88 percent over the past year, while Malaysian rates averaged 3.51 percent. That compares with 1.77 percent in the U.S. and 1.49 percent in Germany.

Brazilian Finance Minister Guido Mantega, who popularized the term “currency war” in 2010, told Bloomberg News last month he’s abandoning a strategy that has driven the real down by 17 percent over the past two years as the government shifts its focus to containing inflation.

The position of Brazil is “more confusing” than some of its developing-market peers because of the uncertainty surrounding the government’s position on the currency, and it’s risky to buy the debt at present, Kinnersley said.

In developed markets such as the U.S., Nikko Asset Management Europe holds shorter-dated notes than its benchmarks due to the risk that yields will surge once central banks begin withdrawing quantitative easing policies, Kinnersley said.

Kinnersley is “constructive” on the U.S. economy and predicts it will perform better than Europe, where the region’s debt crisis is weighing on growth. The euro common currency will survive because the political will is there to preserve it, he said.

The fund manager is also “significantly underweight” on Japanese debt as it expects the yen to continue depreciating.

“On the debt side, the governments in many emerging markets, they’re in a much better fiscal position than their developed market counterparts,” Kinnersley said. “We believe in the secular story for emerging markets.”

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