“RMB is a long-lost friend. More people are getting familiar with the system – they’re trying to push more two-way profitability. I think it will gain more traction especially with more index inclusion later on and it’s a good yield,” says one credit head based in Hong Kong. “Policy banks give you a 5 handle, some triple-A SOEs already have a 6 handle, despite needing to pay tax,” he continues.
Recently Bloomberg announced that it will add onshore government and policy bank bonds to the Bloomberg Barclays Global Aggregate Index from April 2019 onwards given certain operational improvements by the People’s Bank of China and Ministry of Finance. This is expected to push emerging market allocations in the currency higher.
A Singapore-based trader is vocal on Malaysian ringgit and Indonesian rupiah which already have higher weightings on EM indexes. “I think Malaysia because of the way the currency is moving and Indonesia with higher real yields would attract more interest,” he explains.
Last year the ringgit rebounded from a 19-year low on the back of better economic growth, the hawkish central bank stance as well as stabilising oil prices. The country has since seen improving fundamentals and export growth.
The sovereign rating upgrade of Indonesia out of junk status by Standard & Poor’s in March contributed to record foreign inflows into the nation’s bonds in 2017. “Apart from offering higher yield or carry they (Indonesian rupiah bonds) are subject to lower FX risk,” says a head of fixed income in Hong Kong.
“They have a much stronger political stance to contain the fiscal deficit situation, unlike India where there is still some slippage,” says another fund manager in the city.
Additionally, last week Moody's Investors Service also upgraded the Government of Indonesia's long-term issuer and senior unsecured ratings to Baa2 from Baa3 with a stable outlook.
These data are part of ABR’s Asian Local Currency Bond Benchmark Review 2018.
Methodology
The Asian Local Currency Bond Benchmark Review is conducted in the first quarter of the year. Over 300 local currency bond investors including asset managers, hedge funds, private banks, insurance funds and commercial banks from 11 Asian markets namely China, CNH, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand take part.
Data sets include market penetration, market share/wallet share, buying criteria/client satisfaction, research content and the top individuals. To learn more about the Asian Local Currency Bond Benchmark Review please click here.
