A
military regime delaying elections, haircuts for foreign investors using local
courts and a prime minister fighting a financial scandal are among risks funds
are looking past as they pile into Southeast Asian debt.
Foreigners
have pumped $12 billion into Thai, Indonesian and Malaysian notes this year,
more than twice as much as in 2015.
Thailand,
where Prime Minister Prayuth Chan-Ocha hasn’t set a date for a vote two years
after taking power in a coup, has lured the most inflows. Indonesia has reaped
rewards from easing inflation, despite losses for foreign investors in two
high-profile defaults. In Malaysia, a rebound in oil has offset concern over
global probes into an investment company whose chief adviser is Prime Minister
Najib Razak.
“Investors
are taking the view that unless an event will completely derail a country’s
reform process and undermine the economic growth outlook, it is not justified
to reverse a long-term investment decision,” said Anders Faergemann, a
London-based senior portfolio manager at PineBridge Investments, which oversees
more than $84 billion. “This shows a new sophistication and understanding of
domestic issues by foreign investors.”
Southeast
Asia has benefited from the Federal Reserve’s go-slow approach to raising
interest rates, a stabilization of China’s economy and a recovery in commodity
prices. The International Monetary Fund last week maintained its growth
forecasts for the big five Asean economies, while cutting global projections.
The Asian Development Bank says the region’s expansion prospects and
600-million plus population make it the next “growth play.”
Thailand, Indonesia
Thai
Prime Minister Prayuth had targeted holding an election in late 2015 but pushed
that back to mid-2017. Thailand will hold a referendum on a new constitution in
August after the junta rejected a draft charter in September. Many investors
viewed the military coup as necessary to restore stability after a “precarious
political situation,” said Faergemann.
Overseas
investors bought a net $5.2 billion of baht sovereign and corporate securities
this year, according to data from the Thai Bond Market Association. While the
Bank of Thailand cut its benchmark rate twice last year, to 1.5 percent,
economic growth hasn’t exceeded 3 percent, supporting the debt market as
lenders park excess cash there.
Foreign
funds have pumped a net $4.7 billion into Indonesian government securities in
2016, Finance Ministry figures show, as inflation below 5 percent allowed three
interest-rate cuts in 2016. While flow data for company notes aren’t available,
a JPMorgan Chase & Co. index of dollar-denominated corporate paper show the
average yield has fallen 38 basis points this year to 5.5 percent.
Some
bondholders of PT Trikomsel Oke said they were disappointed with an Indonesia
court decision that rejected their claims after the phone retailer’s 2015
default. This month, a Jakarta judge excluded Standard Chartered Plc from a
creditor list and raised questions about the validity of its claims to recoup a
$1 billion loan made to coal miner PT Borneo Lumbung Energi & Metal,
according to a Reuters report.
IMDB, Najib
Overseas
investors bought a net $2.3 billion of Malaysian government and corporate notes
in the first three months of this year, official data show. While local
authorities cleared Prime Minister Najib this year over what they said was a
$681 million donation from the Saudi Arabian royal family, regulators from
Switzerland to Singapore are investigating allegations state-owned investment
company 1Malaysia Development Bhd. was used to funnel money to individuals
including the premier. Najib and IMDB have denied any wrongdoing.
1MDB’s
dollar bond prices slumped on Monday to the lowest since November after an Abu
Dhabi sovereign wealth fund said the company and the Malaysian finance ministry
have defaulted on terms of a binding agreement including a payment of more than
$1 billion. The notes traded at 83 cents on the dollar on Tuesday to yield 7.62
percent, compared with less than 6 percent last week, according to
Bloomberg-compiled prices.
The
dispute with the Abu Dhabi fund puts the progress of the state investment
company’s debt restructuring efforts in doubt, Christian de Guzman, a
Singapore-based senior analyst at Moody’s Investors Service, said on Tuesday in
response to questions from Bloomberg.
1MDB sees
an “amicable resolution” to the dispute, President Arul Kanda said Tuesday in
an interview with Bloomberg Television. The Malaysian fund is in a ‘‘very
stable position,” he said.
Around a
fifth of Malaysian government revenue comes from sources related to oil, which
has rebounded from a 12-year low. Demand has also been bolstered by 1MDB
selling assets.
Supportive Environment
“The risk
premia has reduced in 2016 as 1MDB monetized assets and risk sentiment turned
for the better supported by a stabilization in the oil price,” said Jens
Nystedt, a New York-based managing director at Morgan Stanley Investment
Management, which oversees $406 billion.
Regional
political considerations for Southeast Asian bonds have been factored in and
the global environment is supportive, said Valentina Chen, a Zurich-based
senior portfolio manager at Vontobel Asset Management, which oversaw $95.7
billion as of December 2015.
“As long
as the Fed stays dovish and we don’t see any deterioration in emerging-market
Asia fundamentals, we expect the inflows to continue,” she said.
Y-Sing
Liau
Business & Investment Opportunities
Saigon Business Corporation Pte Ltd (SBC) is incorporated
in Singapore since 1994.
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