The Dutch pension asset manager's Asia Pacific head of real estate says his team has just had one of its busiest years ever and that 2021 is looking similarly promising.
In the short term, investors are looking to benefit from AsiaÆs rising interest rates and strengthening currencies, Foong says, and one way of doing that is by investing in fixed-income assets.
For the long-term investors, the appeal of the fixed-income asset class rests in the convincing emerging market story, more disciplined fiscal and monetary policies, more open capital markets, robust economic growth and healthy corporate balance sheets. The Philippines, for one, has witnessed significant improvements in credit ratings, narrowing of spreads, and improving returns and that has attracted more demand for fixed-income assets from that market.
ôWe strongly believe that Asian fixed income is a very attractive asset class,ö Fong says.
Pimco Asia is part of Pimco Group, one of the largest bond managers in the world, with more than $800 billion in assets under management as of March 2008. Pimco Asia was the first global office established outside of PimcoÆs headquarters in Newport Beach, California. Since the Singapore office was opened in 1996, assets under management have grown to $7.8 billion as of March 2008, a modest amount compared with global AUM.
Increasing focus on emerging market investments among investors worldwide has already brought multiple structural changes in the supply-demand dynamics for Asian fixed income, Foong notes. And if his predictions are correct, Pimco Asia can expect to see a significant increase in assets from clients in the region.
Even among traditionally equities-focused Asian retail clients, Foong observes a shift in appetite towards fixed income that has been triggered by high volatility in equities markets in recent years.
ôWhat we are seeing is a definite increase in production of structures of fixed-income products,ö he says, adding that investors in Asia are becoming increasingly diversified away from equities.
Asian distributors are demanding more product ideas such as funds that give investors access to emerging markets, commodities and now fixed-income themes.
ôYouÆve got the demand now. Credit spreads are narrowing. The dynamics are there for a more vibrant Asian fixed-income market. We need to see the supply side take advantage of it,ö Foong says.
Meanwhile, Foong says AsiaÆs growth momentum remains strong and the region may even emerge to replace G3 countries in helping sustain the worldÆs economic expansion within a five-year horizon.
Now that domestic Asian consumption is rising and high energy, food and commodities prices are becoming an inevitable trend, global inflation is looking increasing secular for the rest of the world. High growth and high inflation always come together, and Asia is not exempted from this, Foong notes.
ôIf you look at the tools available in terms of addressing inflation, typically they are interest rates and currency,ö he says.
To address inflation, central banks could be expected to raise interest rates, or appreciate their currencies, or do both. ôItÆs a delicate balancing act which the Asian central banks are faced with,ö he says.
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Mega players Nippon Life and Dai-ichi Life are looking for opportunities in higher-yield single-A US corporate bonds, which offer more appealing yields than stagnant domestic offerings.