Fund manager sees good returns from Asian US$ bonds
Investors looking for a healthy balance between risk and reward could do no worse than adding Asian US dollar bonds to their portfolio this year, according to ING Investment Management.
But Bas van Buuren, an investment manager on the fixed-income side, said he did not expect the asset class to really begin to perform until the Iraqi overhang was removed.
'Once there are signs that this will improve, you need to be quick and need to move down the credit curve as that's where most of the gains will be had,' he said.
With any potential war against Iraq over by summer, and a United States economic recovery gathering momentum in the second half of the year, Mr van Buuren said he expected to see credit spreads tightening through this year and Asian US dollar bond investors to see a return of 6 per cent to 8 per cent.
But higher grade credits are likely to see their spreads tighten to unattractive levels this year, and Mr van Buuren recommended investors move down the credit curve into riskier credits to pick up the yield and take advantage of the tightening that ING expects to see in the second half.
Mr van Buuren said Asian US dollar bonds had outperformed as an asset class on a historical basis. 'If you'd have invested US$100 in Asian US bonds eight years ago, you'd be sitting on $235 today. That's a tremendous performance which outperforms any asset class over the last eight years,' he said.
Fundamentals in the region are conducive to fixed-income performance, with banks flooded with liquidity, a current account surplus of 4 per cent, and foreign exchange reserves growing, in part because of government interventions into the currency markets, Mr van Buuren said.
And with the deleveraging of recent years expected to continue, Mr van Buuren said there could be sovereign upgrades during this year.
'We expect rating upgrades for countries like China, Thailand and even Indonesia, and in the more exotic area, we think that Vietnam is on a recovery path so definitely, the momentum is still there,' he said.
Among ING's recommendations, Mr van Buuren said improving fiscal conditions in the Philippines would be too good to miss this year, and that Indonesia was the most likely candidate for a ratings upgrade.
Graphic: HIST13gbz
