Top Malaysia Bond Fund Sees Opportunities in Banks, Power Firms

Malaysia’s best-performing bond fund is holding five times as much cash as usual and is considering buying the debt of local lenders and power companies if yields keep rising, the vehicle’s manager said.

CIMB-Principal Bond Fund will be “more conservative” and refrain from taking big positions in the coming months while waiting for volatility to abate, CIMB-Principal Asset Management Bhd.’s regional chief investment officer Raymond Tang said in an interview yesterday in Kuala Lumpur. Cash levels were increased to 10 percent to 15 percent in the last two to three months from 2 percent in anticipation of a rise in debt sales after the nation’s May 5 general election, he said.

“I’ve got a pretty good level of cash to re-invest so I’m looking to re-enter the market,” said Tang, who helps oversee about $10 billion. “Banking is a tightly regulated market and the capital ratios are strong. Power companies are cash-rich, concession-type assets, so normally they’d be defensive.”

Malaysia’s five-year government bond yield surged to the highest level in almost three years yesterday after Federal Reserve Chairman Ben S. Bernanke said June 19 policy makers may cut stimulus this year and end it in 2014, stemming flows that boosted emerging-market assets. The country’s economy is the most vulnerable in Southeast Asia to the risk of a “sudden stop” in fund inflows as it’s the biggest regional beneficiary of the Fed’s largesse, according to a June 20 report from Bank of America Merrill Lynch.

‘Easily Spooked’

“We are cautious in this kind of environment,” Tang said. “People are easily spooked. Definitely, the feeling is a little bit pessimistic right now,” he said, adding that Malaysian yields could rise further

The country’s local-currency debt has lost 0.8 percent this month, poised for the first decline since September 2012, according to an index compiled by HSBC Holdings Plc.

CIMB-Principal Bond Fund delivered gains of 2.7 percent this year, the best performance among 13 Malaysian fixed-income vehicles with assets of at least $100 million, data compiled by Bloomberg show. The 563.5 million ringgit ($177 million) fund invests only in ringgit notes and 82 percent of holdings are in debt with maturities of more than three years, according to its latest available factsheet.

The fund holds power-plant operator Jimah Energy Ventures Sdn.’s 8 percent notes due November 2016, palm oil planter Golden Agri-Resources Ltd.’s 4.35 percent 2017 bonds and Hong Leong Financial Group Bhd.’s 4.5 percent securities maturing 2018, according to the factsheet.

In the longer-term, Malaysia’s debt market will be supported by “a lot of natural latent demand” from the country’s biggest pension funds and insurance companies, according to Tang.

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