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Governments can make or break Asia’s bond markets
Astute Investors weigh in on 2015 outlook
Asset Benchmark Research 8 Sep 2014

Hong Kong

 

The Asset Benchmark Research

Paula Chan

Manulife Asset Management

Positive


Asia continues to demonstrate resilient economic growth supported by strong fiscal balance sheets offering a compelling investment story for investors. This demand will be one of the key driving factors for the development of the local currency bond market. From the issuers’ perspective, demand will potentially lower the funding yield but also enhance the investor base, hence lead to more market liquidity.

 

Ronald Chan

Manulife Asset Management

Great investment story

Positive


The secular growth trend in Asian local currency (LCY) bonds continues to be one of the great investment stories globally. This was shown in the strong manner in which Asian bonds rebounded since the emerging market (EM) sell-off earlier in the year.


However, short-term noise in the region could bring temporary doubts to some global investors. It is important that Asian governments continue to be steadfast and maintain solid fiscal discipline and ultimately this will be positively reflected by the bond market.

 

Top five investment houses in Asian Local Currency Bonds 2014, Hong Kong

The Asset Benchmark Research

Jennifer Kwan

BOC Group Life Assurance

Resilient fundamentals

Positive


We are still positive on Asian local currency bonds as monetary and fiscal policies remain benign and fundamentals remain resilient.

 

Ronald Lee

Bank of Communications

Carry complacency

Neutral


The year-to-date performance of EM assets has been respectable. The combination of balance sheet accommodation by central banks in the developed world, a mostly constructive global macro backdrop, low cross-asset market volatility and inflow momentum, continues to feed interest in Asian local markets. I get an increasingly uncomfortable feeling about this low volume environment, and the carry complacency it is breeding. The growth momentum in Asia is showing some signs of pick up, but not in a convincing mode and the market still needs more positive policy adjustments. Although global growth is expected to improve continually, this prompts central banks to turn more hawkish than markets expect and the pressure on commodities will likely accelerate inflation worries. Sensitivity to Fed policy will still be a key driver for most EM local bond markets, though the uncertainty over tapering will be replaced by the ebb and flow of market confidence. With volatility this low and no real impulse in sight apart from geo-politics, investors should adopt a more cautious approach going into the second half of 2014. Now more than ever, it is prudent to be selective and deliberate on local currencies and credits.

 

Endre Pedersen

Manulife Asset Management

Regional rates mixed

Neutral


Over the coming 12 months, there is not likely to be one clear trend in the local market. Global rates are likely to be pushed higher while regional rates will be more mixed with domestic and local factors influencing the local rate curves in the various markets.


Gregory Suen

HSBC Global Asset Management

CNH attraction

Positive


The continued abundance of money globally seeking good yielding investments should support fund flows into Asia and into markets that still offer attractive yields relative to other more developed markets. The growth potential of some markets would naturally attract investors to increase their holdings from a fairly low base, with the CNH bond market a good example. While fund flows from outside of Asia remain important, the ever-growing local investor base from within the region would gradually increase its fund flows and influence in the Asian markets. The conclusion of elections in a few Asian countries this year should remove some lingering concerns that have affected the markets in the past year. It is important to monitor the fund flows between asset classes in the coming period as we may slowly begin to see some asset reallocation from fixed income into other asset classes such as equities.

 

 

India

 

 

The Asset Benchmark Research

 

Dinesh Ahuja

SBI Funds Management

Rupee outlook improved

Positive


The measures taken by the RBI (Reserve Bank of India) since September 2013 in response to the depreciating currency and the government’s moves to curtail the current account deficit have led to significant improvements on the external macro front. With a stable and pro-reform government at the centre, the outlook for the rupee has significantly improved. This has translated into large foreign flows in the domestic debt and equity markets, enabling the RBI to increase its foreign exchange reserves. We expect strong interest from foreign investors in the LCY bond markets on the back of a positive rupee outlook and attractive absolute levels of interest rates.

 

Jitendra Arora

ICICI Prudential Life Insurance

Rates cut

Positive


Asian bonds in general and Indian bonds in particular faced significant headwinds since May last year. Since then, bonds have recovered. But there still remains a lot of potential for yields to come off given the elevated yields in India. As economic fundamentals continue to improve and growth picks up in the rest of the world, domestic policy makers will have room to cut rates over the next 12 months, leading to strong returns from local currency bonds.

 

Suyash Choudhary

IDFC Asset Management

Indian policy jolt

Positive


India experienced an adverse macroeconomic cycle between 2009-2013 marked by a steadily deteriorating financial savings rate and falling capital productivity. Low real policy rates, loose fiscal policy and pronounced supply bottlenecks were contributory reasons. Last year’s emerging market shock triggered by the Fed’s taper expectations jolted Indian policy into action. When the RBI unveiled a refined monetary policy framework in January specifically targeted towards CPI inflation, the first leg of a sustainable macroeconomic solution fell into place. From here on, the adjustment will be driven by the government as a result of its election mandate. We believe interest rates have peaked and, subject to the pace of macroeconomic adjustment, the bond markets can look forward to some monetary easing sometime in the next calendar year.

 

Nirmal Gandhi

SBI Life Insurance

Highest yields

Positive


We are positive towards the Indian bond markets from a 12-month perspective. The stronger-than- expected mandate in the general election has turned the sentiment positive. Foreign institutional investors have become bullish on rates after witnessing the intent of the new government to tackle inflation, bring reforms in the manufacturing and infrastructure sectors, remove policy bottlenecks and lay down a credible map of fiscal consolidation. Local currency bonds offer the highest yields among Asian peers and this, coupled with the positive outlook on the rupee, will attract further inflows to the rates markets and bring yields down further.

 

Top five investment houses in Asian Local Currency Bonds 2014, India

The Asset Benchmark Research

 

Rahul Goswami

ICICI Prudential Asset Management

Risk appetite for credit

Positive


We expect a continuous improvement in global growth which could benefit the risk appetite towards credit and bond markets in Asian LCY markets.

 

Santosh Kamath

Franklin Templeton Investments, India

Monsoon risk

Neutral


We are presently a bit cautious on the Indian bond markets, and expect them to be volatile. A strong and stable government in India should create a conducive environment for comprehensive policy actions and a gradual recovery in economic growth. Sentiment is still good, and this is being supported by healthy foreign inflows. However, we feel that expectations may have been built too high, and there are some risks that the pace of actual execution and impact may not be able to keep up with market expectations.


Headwinds like inflation and the fiscal deficit prevail. Although inflation may have moderated, there are some upside risks including a weak monsoon and a recent rise in crude oil prices due to geopolitical factors. Fiscal consolidation will need to continue in FY2015, and the quality of the deficit will also need to improve.


The government has been able to arrest the current account gap to a large extent, but if the rupee gathers strength, it will affect exports, and take a toll on current account deficit again. The RBI will need to balance the rupee appreciation.


Given these uncertainties, we feel that the longer end of the yield curve will be relatively more volatile, and we need to be cautious in this space. At present, we are more positive on corporate bonds and on the shorter end of the curve.

 

Prashant Pimple

Reliance Capital Asset Management

Decade-high yields

Positive


We are very bullish on the local currency bond markets as both the political and macro scenarios in India are improving and yields are almost at decade-high levels.

 

Arun Srinivasan

ICICI Prudential Life Insurance

Corporate ratings upgrades

Positive


The rate hike cycle in India seems to be coming to an end. The new government has come in with an agenda of fiscal discipline and consolidation; inflation is starting to fall due to the measures taken by both the government and the RBI. We expect the RBI to start cutting interest rates from the first quarter of 2015. We are positive on rupee-denominated bonds and debentures. In addition, with economic growth expected to revive, more corporate rating upgrades are likely in the near future.

 

Amit Tripathi

Reliance Capital Asset Management

Improving macroeconomics

Positive


While global headwinds including the next Fed move will impact LCY bonds. In India, the bigger story will be the steady improvement in domestic macroeconomics, including fiscal deficit and inflation.

 

 

 

Indonesia

 

 

The Asset Benchmark Research

Eli Djurfanto

First State Investments Indonesia

International investor interest

Negative


When the newly-elected government deals with the fuel subsidy reduction/removal, it will result in higher inflation and might be followed by rate tightening. Until the decision to reduce the subsidy is made, the government will have to increase the bond supply to finance higher budget deficits in H2 2014 coming from higher oil price and rupiah weakening. We expect bond yields to trade higher from current levels in July. Easy monetary policies by other major central banks might continue to give support to bond yields while the rupiah would reach a level that is interesting for offshore investors to purchase local assets at current level.

 

Ezra Nazula

Manulife Asset Management (Indonesia)

Headwinds looming

Neutral


Indonesia’s bond market has been one of the best performing in the first half of 2014, given the surprisingly slow pace of the rise in US treasury yields causing the global carry trade to continue, as well as improved domestic macro-economic conditions. There are headwinds on the horizon that the newly-formed government will need to tackle as some structural issues have to be handled, as well as the expected higher trajectory of US treasury yields going into 2015.

 

Top five investment houses in Asian Local Currency Bonds 2014, Indonesia

The Asset Benchmark Research

Ana Pangestu

AIA Financial

Untangled infrastructure deadlock

Positive


Positive especially in Indonesia. With the new government platform, the market expects the infrastructure deadlock to be untangled and the current account deficit caused by oil and gas imports to be reduced.

 

Djumala Sutedja

BNP Paribas Investment Partners

Tightening liquidity

Negative


The Asian LCY bond market will experience more headwinds in the year ahead as I expect the global liquidity condition to become more restrictive as the US starts its tightening cycle.

 

 

Malaysia

 

 

The Asset Benchmark Research

Fariza Ali

Asian Islamic Investment Management

Positive


The first half this year registered a commendable performance for Asian LCY bonds although it was primarily driven by the rally in US treasuries which clearly defied most investors’ expectations. Moving forward, we are still positive on the outlook for the Asian local currency bond market. The premise for this includes a positive regional economy as well as fund inflows due to a carry-friendly environment. Bad weather, which resulted in slower growth and low yields, encouraged investors to re-allocate money to Asia. Additionally, we see switching from Latin America and Russia due to geopolitical risks. Nevertheless, given the solid return in H1, the spread compression could be limited in the near term.

 

Michael Chang

MCIS Insurance

Risks priced in

Positive


The local currency bond market is expected to be positive in the next 12 months for these reasons:


• Rate hike expectations in Malaysia’s overnight policy rate (OPR) have largely been priced in by the market since May 2014 following the monetary policy committee (MPC) statement by Bank Negara Malaysia (BNM) in May. BNM had also increased the OPR by 25bp to 3.25% as widely expected on July 10 2014, thus reaffirming BNM’s stance on interest rate policy.


• The bond market has overall been sluggish since June 2013 when it was first triggered by the US Fed announcement to begin tapering its QE policy earlier than market consensus.


These key risks could have been priced in by the bond market and it is likely to stage a rebound in the next 12 months. Additionally, the supply of Malaysian government securities (MGS), especially longer dated MGS, would likely be minimal for the rest of this year as Malaysia intensifies its fiscal consolidation efforts. This could spur the possibility of greater inflows from offshore investors should a positive re-rating of the country’s sovereign risk materialize. The hike in OPR and the sustained strength of the currency could also be key catalysts for a buoyant bond market.

 

Ilene Chong

Eastspring Investments

Yield pressures

Neutral


As the US draws nearer to ending its QE programme and eventually hiking rates when its economic growth strengthens, we expect our LCY bond market to face some rounds of volatility due to speculation on the timing, pace and magnitude of such US rate increases. Imminent hikes in local interest rates will help maintain a positive interest rate differential to US Fed Fund rates and mitigate outflows as rates start to rise in developed markets. This would pressure bond yields upwards, particularly shorter tenor bonds in the immediate term. The magnitude of these pressure risks is more severe in markets with high foreign holdings in LCY bonds, such as ours.

 

Top five investment houses in Asian Local Currency Bonds 2014, Malaysia

The Asset Benchmark Research

Hoe Cheah How

RHB Asset Management

Inflation concerns

Negative


We are slightly negative on the Asian LCY bond market in the next 12 months given our view of higher inflation and potential interest rates hike by some of the Asian central banks.

 

Jackie Saw

Hong Leong Assurance

Challenging and volatile

Negative


The Asian LCY bond market for the year ahead is likely to be challenging and volatile. The bond market is expecting the central bank to move towards normalization of interest rates. The country’s economic growth and inflation reading will be among the key determinants for the central bank’s assessment of its monetary policy stance. Bond yields will be very volatile as these are subject to local and global economic fundamentals and dependent on statements from various central banks. Ample liquidity in the system could keep bond yields stable.

 

 

Philippines

 

 

The Asset Benchmark Research

Deanno Basas

ATR KimEng Asset Management

Rate adjustment needed

Negative


Local currency interest rates need to adjust higher to maintain a reasonable spread against the US and other developed market rates.

 

Yvette Carlos

Manulife Philippines

Historical range

Neutral


We believe that Asian LCY bonds will continue to trade within the recent historical range, as the key factors affecting the market are likely to linger in the year ahead. We expect the Fed’s forward guidance on its key policy rates and the movement of the US treasury yield curve to maintain its influence on the performance of Asian local currency bonds in the next 12 months. Other factors that could drive the direction of bond yields include the easing bias of the European Central Bank, the ongoing geopolitical tensions in various parts of the world and the potential shifts in the monetary policy of Asian central banks, which may or may not be supportive of Asian LCY bonds.

 

Kathrina Dizon

Philam Life Insurance

Ahead of the curve

Negative to neutral


After three consecutive years of stellar economic growth in the Philippines, inflation has finally caught up. Given the compression of yields in the same period, the challenge is to find positive real returns amid an excessively liquid financial market. With its mandate to safeguard price and financial stability, the central bank is expected to continue taking monetary policy action in the second half of 2014 to ensure that we are still ahead of the curve. We have just entered a gradually rising interest rate environment for the next 12 months. Downside risk to the rising inflation outlook could stem from slower economic activity. However, the government’s commitment to sustain Philippine growth may temper this possibility.

 

Top five investment houses in Asian Local Currency Bonds 2014, Philippines

The Asset Benchmark Research

Bernard Florencio

Banco de Oro

Pressure on long-dated bonds

Negative


The growth outlook for EM Asia is weak, triggering capital outflow which may lead to depreciating currencies and rising bond yields.


Rising interest rates can be further fueled by the start of policy tightening of the Fed. In anticipation of the Fed rate hike, the region may possibly raise interest rates ahead of the Fed’s move to boost their currencies, adding pressure on long-dated bond yields to increase.

 

Anthony Garces

Manulife Philippines

Lower inflation forecast

Neutral


Over the next year, our outlook on the Philippine LCY bond market is neutral. While the continued normalization of US monetary policy is expected to put pressure on local bond rates, the lower inflation forecast next year and the resilient domestic economic condition are seen to provide support to the local bond market.

 

Gladys Lim and Ritchie Teo

Bank of the Philippine Islands

Neutral


We expect a challenging year ahead amid a volatile environment, increased competition and a possible US Fed fund rate hike which will spill over to the Asian local currency bond market. Despite these risks, the Philippine economy is still expected to remain robust in the run-up to the 2016 election and benefit from the government’s private-public partnership programmes. 2015 will also mark the Asean integration which changes the investors’ landscape, both locally and internationally, and with the largely untapped opportunities in the Philippines’ mass affluent market, coupled with the lower debt plan of the government, we foresee continuing support in the local bond market.

 

 

Singapore

 

 

The Asset Benchmark Research

Kenneth Akintewe

Aberdeen Asset Management

Volatility risks

Neutral


The next six months will likely remain fairly supportive of Asian LCY bond markets. While the US growth momentum will improve from the low base in the first quarter, the Fed is not predisposed to aggressively normalizing policy while concerns over the quality of the recovery remain. At the same time, deflationary risks and a persistently strong currency in Europe are likely to result in a further loosening of policy and quantitative easing measures. Beyond the next six months, however, and particularly towards the latter stages, the market will likely have to contend with the commencement of the Fed interest rate hikes. This could begin to drive volatility across asset classes off multi-year lows and put pressure on EM and Asian markets, particularly if this is coinciding with a continued acceleration in inflation.

 

Ang Chow-Yang

Schroder Investment Management

Asian assets into favour

Positive


Asian countries went through a series of macro adjustments to correct the valuation misalignments in the second half of 2013. India/Indonesia will have stronger political leaders to push through the much-needed reforms. Growth differentials vis-à-vis developed markets should start to favour Asian assets again.

 

Cheong Wei-Ming

Eastspring Investments

Gradual rates normalization


Given the expected pickup in the US economy, stabilization in EM growth particularly in China and further monetary easing by the ECB to support the Eurozone economy, the outlook for the LCY market is mildly positive in my view. While the normalization of US rates could lead to a rise in local rates, this is expected to be gradual and orderly, unlike the disruptive spikes the market witnessed last May due to taper-tantrum fears. A better EM growth outlook coupled with continued accommodative monetary policies by other major central banks (with the exception of the Bank of England) should support risk sentiment towards the LCY markets.

 

The Asset Benchmark Research

 

Chia Tse-Chern

UOB Asset Management

Currency differences

Neutral


I think that low yielding currencies like the Singapore and Taiwan dollar and the won will weaken against the US dollar as US treasury yields begin to rise while high yielding currencies like rupee and rupiah are significantly under-developed and likely to appreciate against US dollar even as rates rise.

 

Desmond Fu

Western Asset Management

Core strategic allocation

Positive


Asian LCY bonds continue to benefit from a broader and deeper investor base as investors increasingly recognize them as a core strategic allocation. This is partly driven by strong household savings, growing pension and insurance funds and maturing demographics which favour stable income streams over volatile capital-driven asset classes. Regulators are also making an effort to make both government and corporate bonds more accessible to individual investors to further develop debt capital markets. The structural strength of Asian currencies makes a strong case for fixed income investment opportunities within Asia. The broadening issuer base across the credit spectrum from investment grade sovereigns to high yield corporates also allows for diversified access for varying risk appetites.

 

Omar Slim

PineBridge Investments

Greater issuer discrimination

Neutral


Strong technical factors benefitting the Asian LCY bond markets, such as the Singapore dollar market, are driven by fundamental forces which should continue to exist for the foreseeable future. Asia will continue its rise as an increasingly important asset pool. Asian investors, particularly the non-institutional ones, generally have a strong home bias, particularly when it comes to less volatile currencies such as Singapore dollar and CNH. But there are some signs of excesses in some LCY bond markets. Issuers with poor credit metrics and low financial reporting transparency are able to issue bonds at very low yields. This increases the vulnerability of the markets, particularly as we move from an environment of low yields and ample liquidity to an environment of low yields still but tighter liquidity. On balance, the outlook for the local currency bond markets remains strong but greater issuer discrimination is required and we don’t discount some noise coming from more marginal issuers.

 

Danny Tan

Eastspring Investments

Mildly positive


Global economic growth remains lacklustre and thus, there is little pressure for rates to move up soon in the near term.

 

Jiayi Yew

Aberdeen Asset Management

Understanding idiosyncrasies

Positive


While interest rate markets were more externally-driven and directional last year, this year it is crucial to identify and understand in-depth the idiosyncrasies of Asian LCY markets. Previously, it was easy to penalize the two high-yielding markets (India and Indonesia) for fiscal and current account imbalances. This year, political uncertainty, growth concerns and changes in monetary-policy have been key drivers of interest rates. Going forward, it would also be difficult to label the traditional EM markets (Korea, Malaysia, Thailand,
Philippines) as one. Thailand’s political impasse is crucial in determining its growth outlook, while Malaysia is coming under inflationary pressures due to fiscal reforms such as the introduction of GST and commodities’ price hikes. Although China indicated that it will tolerate slower growth, it is currently stimulating the economy via measures such as targeted RRR cuts and a tweak in loan-deposit ratios of banks. In the long run, I remain positive on credit qualities of Asian economies, driven by supportive demographics and more prudent monetary and fiscal policies.

 

 

Taiwan

 

 

The Asset Benchmark Research

Patty Chang

Fubon Life Insurance

Downward revision

Negative


The International Monetary Fund said most emerging countries in Asia are affected by the US policy rate. In spite of the tapering, both equity and bond markets have outperformed in recent years. A revise downward is possible in the future, thus, the outlook for the Asian local currency bond market is negative.

 

Jason Chen

ex-Taiwan Life Insurance

Weakening bonds

Negative


US economic data for the second quarter 2014 shows a gradual recovery and the market predicts the withdrawal of QE in October this year. From a series of favourable news, we can expect the US will start raising interest rates in Q2 2015 at the earliest. The bond market would react beforehand and weaken.

 

Top five investment houses in Asian Local Currency Bonds 2014, Taiwan

The Asset Benchmark Research

 

Hsu Chia-lin

TransGlobe Life Insurance

Relaxed regulations

Negative


The US economy is set for a recovery which will lead to higher interest rates for Asia. As regulators relax rules for Taiwan life insurance companies, they will have a greater flexibility in investing and this will help raise yields in the Taiwan bond market.

 

Yvonne Huang

Mercuries Life Insurance


As the US economy is steadily recovering, the unemployment rate has dropped to 6.5%. At the same time, inflation has started to warm up and there is a higher chance that interest rates will rise. Further, the authorities opened up regulations on international bonds issued in Taiwan where overseas investment limits will be lifted. Under capital exclusion and pricing comparison, interest rate of Taiwan dollar bonds will increase.


Maximo Wu

Standard Chartered Bank Financial Markets

Inflation risks

Negative


We could see inflation gradually increase again in Asia which will have a negative effect on all bond markets.

 

Linda Yang and Jackie Chen

Entie Bank

Issuance meets hot money

Most positive


Benefiting from the low interest rate environment and loose monetary policy around the globe, international hot money is chasing higher yields in the EMs. Corporate bond issuance continues to break records as the bond market heats up in Asia including Taiwan. Based on the latest Asian Development Bank’s Asia Bond Monitor, emerging East Asian local currency bond markets have regained their bounce as investors’ risk appetite returns. Statistics showed the outstanding size of the emerging East Asian LCY bond market reached US$7.6 trillion at end-March, up 9.5% year-on-year (yoy). ADB also forecasts that the emerging East Asian bond market will continue its expansion. In addition, Standard & Poor’s said in June that the corporate debt in Asia-Pacific will exceed that of North America and Europe combined by 2016 as the centre of gravity shifts to the region.

 

 

Thailand

 

 

The Asset Benchmark Research

Surajak Kotikula

Allianz Ayudhya Assurance

More supply, better growth

Negative


Potentially more supply and a better growth rate.


Pramook Malasitt

Kasikorn Asset Management

Portfolio inflow

Positive


In general, I am positive towards Asian LCY bond markets in the next 12 months. The US Treasury rate hike cycle will be slower than anticipated and portfolio flows are likely to re-balance from tightened yield and credit spread in the developed markets to higher real interest rate economies. Most Asian economies are in a better position to attract portfolio inflows due to their high growth outlook and low external

 

Pipat Naranunt

MFC Asset Management

Central banks follow Fed

Negative


Negative impact from the view that the Fed is going to hike rates in H2 2015, then the other central banks will follow. vulnerability compared to other EMs.

 

Porntipa Nungnamjai

Krungsri Asset Management

Shock absorbers

Neutral


My outlook for Asian LCY is neutral, compared to a slightly negative view towards other parts of EM local currency bonds over the next 12 months. With stronger fundamentals, Asian LCY bonds are in a better position to absorb unexpected shock or withstand capital outflow as we progress towards the end of the massive liquidity injection from the Fed and a rising rate cycle. However, recent price correction and proactive actions from each EM central bank to correct their external imbalances so far could create opportunities for accumulating from any sell-off with attractive valuations.

 

Top five investment houses in Asian Local Currency Bonds 2014, Thailand

The Asset Benchmark Research

 

Chajchai Sarit-Apirak

Kasikorn Asset Management

Developed market recovery

Negative


This is due to the following reasons:


• A strong global recovery, especially in developed markets, providing a negative impact in the bond market


• An expectation of interest rate hikes within Q2 2015


• Rising inflation putting upward pressure on bond yields


• Tighter liquidity conditions as US tapering is expected to proceed as planned


Sornchai Suneta

SCB Asset Management

Unsupportive of bonds

Slightly negative


The following factors are not normally considered as supportive for fixed income market:


• Economic recovery, a backdrop of headwind for financial institutions’ markets. Over the next 12 months, the global economic outlook is on a recovery path. Emerging market, including Thailand, is expected to recover on the back of its export sector.


• No need for a rate cut in the foreseeable future. Consensus surveys for nearly all countries in the region (from China to Philippines) expect one or two rate hike by mid-2015. While we do not expect a policy rate hike in Thailand any time soon, the yield of longer-term fixed income could be on a rising trend along with other markets.


• Fund outflows/weaken currency. Thailand (in line with other markets in the region) enjoys a strong inflow during the Fed’s QE era. This is no longer the case, going forward. With QE tapering as a backdrop, followed by possible Fed rate hike sometime in 2015, it is likely to see fund outflows from Thailand (and peer markets) which will possibly lead to a depreciation of local currencies.


• Accelerating inflation in a global scale. Based on market consensus, inflation is expected to accelerate in almost all major economies during the next 12 months: US (from 1.4% in Q1 2014 to 2.1% in Q2 2015), EU (from 0.7% to 1.2%), China (from 2.3% to 3.1%) and Thailand (from 2% to 3%).

 

Thiranuch Thampimukvatana

Government Pension Fund

Yield enhancement

Positive


Investment grade corporate bonds are on track to deliver another year of positive returns as a result of yield enhancement. Positive factors are driven by inflation that is currently benign and central banks around the region gradually moving the interest rate hiking cycle and likely to be on hold for some time. This will limit the potential risk of a bearish bond market. While the volatility is currently very low, given the stable economic growth outlook and robust corporate fundamentals, there is a demand for yields, especially for the Asian LCY bond markets.

 

Linda Ubolriabroy

UOB Asset Management

Positive anticipation

Neutral


I have a neutral view for the Asian LCY bond market in the year ahead as the global economy improves. The US will tighten monetary policy once inflation and employment move closer to the Fed’s goals. The yield premium for Thailand’s 10-year baht bonds over 10-year US treasury had bounced from 80bp to 110bp with Thai bond yield curve steepening as domestic business and consumer confidence improved after the coup in May. Investment projects, including infrastructure, have been put back on track. However, I think that overall flows into Asian LCY bonds will be positive in anticipation of the appreciation in domestic currencies and positive yield carry.

 

Editor’s Note: Investors that ranked within the top 10 were invited to express their views. These award-winning individuals are presented alphabetically by their last names. Their responses were gathered in June and July 2014.

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