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Thursday, September 26, 2013

Pimco sees Asia advantage as bright outlook shrinks spreads


SINGAPORE: Asia’s stronger balance sheets and better economic outlook will see the yield premium investors demand to own the region’s debt versus US bonds shrink, Pacific Investment Management Co (Pimco), manager of the world’s biggest fixed-income fund, predicts.

Sectors to watch include energy, financials and high yield, where corporate issuance since Dec 31 set a record with 76 new deals totalling more than US$30.4bil, the Newport Beach, California-based fund manager said in its latestAsia Credit Perspectives report, released yesterday.

The extra spread investors demand to hold Asia dollar bonds has fallen 25 basis points this month to 333 basis points, Bank of America Merill Lynch indexes show. That compares with a 3 basis-point fall to 152 for debentures from US companies.

“There are many advantages to investing in Asia,” said Raja Mukherji, the Hong Kong-based head of Asian credit research at Pimco, which had US$1.97 trillion in assets under management as of June 30. “The region enjoys decent rates of growth which exceed much of the developed world.”

Developing nations in Asia are forecast to expand almost four times faster than developed economies in 2014, according to International Monetary Fund world growth estimates released in July.

The last several years had seen some extraordinary growth in Asian credit markets and ongoing trends, including supply and demand dynamics, banking sector deleveraging and increasing demand for energy across the region painted a vivid picture for credit investment opportunities, Pimco said.

Borrowers in Asia outside Japan sold some US$93.1bil of US dollar-denominated bonds this year versus US$84.1bil the same period of 2012, according to data compiled by Bloomberg.

Issuance ground to a halt in June after the Federal Reserve signalled it might begin tapering stimulus this year, sending bond yields to a one-year high as funds demanded compensation for the cost of future interest-rate rises. – Bloomberg

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