Opportunities abound in corporate, EM credit: Thai government pension

The Government Pension Fund of Thailand thinks the key to a successful 2023 lies in its capability to manage credit holdings, which account for 60% of the asset pool.
Opportunities abound in corporate, EM credit: Thai government pension

The Government Pension Fund of Thailand sees opportunities in the corporate bond and emerging market bond space, as valuations start to improve and bond yields are likely to be higher than expected inflation.

“Unlike the first half of 2022, where there were the worst six months for credit investment since the Civil War…We foresee the future to be more promising,” said Srikanya Yathip, secretary general of the Government Pension Fund (GPF) of Thailand, during the annual Milken Institute Asia Summit recently.

Srikanya Yathip, GPF

Even though sentiments remain mixed and uncertainties continue, Yathip noted that bond valuations have dramatically improved in the recent quarter despite the tightening macro-economic environment being sequentially negative for credit investments.

“So, we see opportunities arise as positive real yields exist, [given] bond yields are likely to be higher than expected inflation,” she said.

“We put more emphasis on corporate credit, emerging market credit,” Yathip continued. “We think they represent more opportunities than ever, and we believe that they are establishing the roles as a portfolio hedge to equity risk.”

The Government Pension Fund of Thailand has 452.5 billion baht ($12 billion) of assets under management (AUM) as of the end of June. Among them, 59.8% of assets are in fixed income, 15.8% are stocks, and 24.5% are in alternative assets.

Thailand corporate bonds account for the biggest portion of the fixed income portfolio, while emerging market bonds are still just 0.8% of total AUM.

Government Pension Fund of Thailand asset allocation as of June 30, 2022
(Source: GPF)


Yathip said her best answer to investing under gloomy global sentiment is to selectively look for yields while excising capital preservation as needed. And if it is necessary, cash positions will be taken from time to time to avoid setbacks amid high volatility.

“The key success factor for next year lies in our capability to manage our credit holdings in our portfolio. Our chief investment officer has the mandate to make sure that the holding is properly diversified, with the correct balance between risks and rewards, interest rate sensitivity, and credit risks,” she said.

Apart from corporate bonds and emerging market bonds, Yathip also found US Treasuries interesting, not because of the incredibly high yield at an inflation-adjusted level, but due to its function as a defensive asset against equities.

“We see that it's far more headwind than tailwind to favour equities as we see that US Treasuries are defensive assets that are going to work for a period of time until the breakdown of negative correlation between stocks and bonds reverse,” she said.

Global credit is also attractive to the pension fund, as fundamental global quality continues to show resilience.

“Nonetheless, we expect this resilience to be increasingly tested toward the end of this year, until 2023, given the deteriorating macroeconomic outlook, still high inflation, and repricing of risks that will tip the balance in financing terms and conditions going forward,” the secretary general said. 

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