Photographer: Dario Pignatelli/Bloomberg

Adventurous Asian Investors Are Buying Into Latin America

  • DeepBlue aims to increase LatAm exposure to 30% from 10%
  • Asian funds are interested in diversifying portfolios: Citi

Asian investors are getting more adventurous as bond returns in their own region tumble, spurring some to venture as far as Latin America -- an area with a track record of political instability and occasional defaults.

"There have been a lot more dollar issuers from LatAm coming to Hong Kong and Singapore to market their deals," said Ben Yuen, chief fixed-income investment officer at BOCHK Asset Management, a unit of Bank of China Ltd. "Chinese banks and private banking clients are getting very interested in buying these names" given the premiums offered and the overall economic recovery in emerging markets.

Catering to the Asian bid, Mexico City Airport Trust this week started book-building in Asia for an offering of dollar debt -- becoming one of the first issuers from Latin America to do so. It’s a sign of the increasing role of Asian capital, which at one time focused on the accumulation of U.S. Treasuries in official foreign-exchange reserves, and an indication of the potential influence Chinese funds could have if and when China relaxes capital controls.

Even with those controls, Chinese diversification demand had pulled yields on speculative-grade dollar bonds from Asian issuers to an all-time low in April. Latin American junk bond yields are on average more than 70 basis points higher than their Asian counterparts. 

Among the signs of increased appetite for Latin American debt:

  • DeepBlue Global Investment Ltd., a Hong Kong-based cross-asset hedge fund, aims to boost its Latin American bond allocation to 30 percent of the portfolio in the next 3-6 months, from 10 percent now. “LatAm will probably outperform the overall emerging markets, but investors should be carefully monitoring event risks in September,” said Ziyun Wang, founding partner and senior portfolio manager at the firm.
  • Taiwan-based Fuh-Hwa Investment Trust Co. has stepped up its exposure to Brazil and Argentina to about 22 percent of its emerging-market fund, from 17 percent a year ago.
  • BOCHK Asset Management, headquartered in Hong Kong, is aiming to buy more bonds from the continent, lifting its exposure from the current 0.5 percent of its $9.5 billion in dollar assets. The small allocation has already returned 9 percent this year.
  • Hong Kong-based China Merchants Securities Investment Management (HK) Co. is looking to expand its exposure to bonds from Argentina, Peru and Chile while staying cautious on Brazil due to valuations, according to Abhishek Rawat, a director at the asset manager’s emerging market fund.

“Some Asian funds are interested in diversifying away from regional credits into Latin American bonds because the yield pickup from the latter is significantly better," said Manjesh Verma, head of Asia credit-sector specialists at Citigroup Inc. in Hong Kong. That’s despite the fact "they also carry higher risk and LatAm as a region has less economic stability compared with Asian countries.” 

While Argentina and Brazil have both gone through significant political turmoil that’s affected bondholders over the past decade, Bryan Wang, a fund manager at Fuh-Hwa in Taipei, is among those encouraged by the latest signs. Reformist President Mauricio Macri has made political inroads in Argentina, while Brazilian President Michel Temer’s critics have been weakened and he’s doubling down on policy changes.

“We hold a long-term view,” said Wang, who’s optimistic about the two countries’ growth prospects. Meantime, Asia’s junk bond market has become too concentrated in property developers from China and mining companies from Indonesia, offering little opportunity to diversify portfolios, he said.

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