Global funds are snapping up Southeast Asian assets as the prospect of interest-rate cuts and attractive valuations holds out the promise of supersized returns.
Money managers have boosted positions in sovereign bonds in Thailand, Indonesia and Malaysia for the past two months, and have been net buyers of Indonesia, Malaysia and Philippine equities for three months. Those inflows have helped make Southeast Asian currencies the best performers in emerging markets this quarter, while regional stocks have easily beaten their broader EM peers.
Southeast Asian central banks are on the brink of a rate-cut cycle with the Philippines already easing in August, and Indonesia forecast by some economists to follow this week. Real interest rates, or borrowing costs adjusted for inflation, are at historically high levels in the region, creating additional room for policy easing.
“In the medium term, we continue to be positive about Southeast Asian bonds and currencies, particularly in higher-yielding countries,” said Joevin Teo Chin-Ker, head of investment at Amundi Singapore Ltd. “Real rates across Southeast Asian economies are also higher than a year ago, which suggests room to ease, a situation likely to benefit the local bond market.”
Indonesia’s real policy rate is currently 4.1%, which is 1.8 standard deviations above the five-year average, suggesting plenty of room to cut rates. The same gauge for the Philippines is 1.5 standard deviations above the five-year mean. That ranks the two countries in the top four of a Bloomberg survey of emerging-markets worldwide, along with India and South Korea.
BlackRock Inc. intends to use any volatility this month to buy bonds in Asian countries such as the Philippines and Indonesia in a bet that potential rate cuts by the Federal Reserve and local central banks will bolster the region’s debt.
The money manager prefers medium-to-longer maturities in the two nations as their central banks have more room to ease monetary policies, said Neeraj Seth, head of Asian fundamental fixed income at BlackRock in Singapore.
Source: Bloomberg
