Western Asset readies new Asian bond fund

The firm will soon roll out a Dublin-domiciled Asian fixed income product. It also expects more Japanese money to flow offshore and sees Philippine bonds as particularly attractive now.
Western Asset readies new Asian bond fund

Western Asset will unveil a Dublin-domiciled Asian fixed income offering in the coming months, following its flagship Asian Opportunities Fund's recent inflows.

The new strategy will begin trading with $20 million and give offshore investors exposure to Asian credit markets, says Henry Hamrock, head of Singapore and North Asia client service and marketing executive.

This follows the firm's launch of an Asian high-yield bond strategy for Japanese investors in March, which allows them to invest offshore. This will emerge as a trend as a result of Japan prime minister Shinzo Abe’s aggressive monetary easing and fiscal stimulus measures to boost economic growth, argues Lian Chia-Liang, head of investment management at Western Asset.

“One of the unintended consequences of Abenomics is [Japanese] investors will start allocating assets outside of Japan [as they seek] higher-yielding assets' currency gains,” he tells AsianInvestor.

Elsewhere, the firm sees attractive investment opportunities in the Philippines. Lian, who manages the $1.04 billion Asian Opportunities Fund with a team out of Singapore, began increasing its Philippine bond exposure in early 2012 on the assumption that the country would achieve investment-grade status in the near future.

On May 2, ratings agency Standard & Poor's upgraded the country from BB+ to BBB-, followed closely by Fitch also marking it out as investment grade.

Lian says he was surprised how quickly the rating agencies approved the upgrade; he expected it to occur at the end of 2013 at the earliest. He cites it as an important milestone for the country, which has experienced impressive macroeconomic stability since President Benigno Aquino III’s election in 2010.

The country’s balance sheet has improved significantly since Aquino’s election, adds Lian, with its debt-to-GDP ratio dropping to around 50% from a peak of 78% in 2004, according to JP Morgan data.

The Philippines’ reliance on external debt financing has dropped, he notes, as the government buys back high-coupon debt bonds as part of its asset and liability management strategy.

And while he warns of a potential property “froth” forming, he says institutions should regard Philippine fixed income as a safe investment, particularly after the rating upgrade.

The Asian Opportunities Fund returned 12.1% against 8.9% for the HSBC Asia Local Currency Bond Index in 2012. The Singapore office's assets rose to $4.6 billion as of March 31, from $3.2 billion in December 2011. Western's total Asian fixed income assets now stand at $13.7 billion.

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