Goldman Sachs Asset Management is dedicating resources to develop investment strategies in Asian fixed income. The effort is being led by Owi Ruivivar, who has recently transferred from New York to Singapore.
Ruivivar has been with GSAM since 2002 as part of its global emerging-market debt portfolio team. "I decided to cover Asia more extensively and develop our Asian fixed-income franchise," she says. "The region is increasingly dominant in emerging-market debt over a multi-year perspective."
She reports to John Beinner, fixed-income chief investment officer, and Sam Finkelstein, head of macro strategies, both in New York; and to Andrew Wilson, co-head of fixed income in London.
For now, she is a one-woman band in a new position. GSAM has fixed-income managers in the region, including teams in Japan, Korea and Singapore. But most of these analysts and fund managers either have a domestic focus or concentrate on certain products (the Singaporeans are special-situations experts, for example).
Ruivivar, who will speak this week at AsianInvestor's Asia-Pacific Debt Investor Forum at the Conrad Hotel in Hong Kong, has a remit to develop a pan-Asian bond strategy, particularly in local markets. Global investors are underweight emerging markets in general and especially local-currency markets.
This is partly because Asian capital markets are under-developed, but Ruivivar says this varies by market according to its stage of overall development. As per capita GDP increases, so capital markets will mature, she argues.
"If you think emerging markets will continue to account for a greater portion of economic growth over the next two or three decades, it bodes well for increasing the share of the investment opportunity set," she adds.
For example, emerging-market bond issuance today is 11% of EM countries' aggregate GDP. If these economies continue to develop and also liberalise, that ratio could rise to 40% of GDP by 2050. Asia is at the forefront of the global emerging-market debt (EMD) story.
Global investors certainly have plenty of scope to add EMD allocations, since the asset class accounts for a mere 4% of the Barclays Global Aggregate Index. The typical US pension fund allocates less than 1% to EMD, says Ruivivar.
The hurdle, particularly in Asia, is access. There simply aren't allocations available for China and India, because of their capital controls. Moreover, most corporate-bond opportunities are in the US dollar-denominated space. Although some markets are becoming more liquid, such as Thailand and Malaysia, investors must still take a view on key markets via expensive non-deliverable forwards, which are offshore currency instruments.
In the short term, Asian bonds may not be attractive. Asia has recovered swiftly from the global financial crisis and its central banks' exit strategies are at a more advanced stage. This means money supply is tightening. Moreover, most global investors like Asia as a growth story, and therefore favour exposure to currencies and equities, not bonds.
This won't change until the markets offer more depth, which in turn will encourage more Asian companies to issue bonds rather than turn to bank loans. Until that happens, global investors will view the region cautiously. Already, however, sovereign yield curves have been established in markets such as South Korea.
Ruivivar is developing holistic strategies for Asia exposure, and says these may include equities and currencies if that's the best (or only) way to take advantage of themes like China's economic growth or Indian urbanisation.
"I'm in the process of listening and figuring out what an Asia regional investment opportunity should look like," she says. "We will develop products that meld the deepening of capital markets to the growth story that is reflected in equity premia."