Asian Dollar Debt Still Attractive, Lion Global Says

By Patricia Lui

Jan. 19 (Bloomberg) -- Asia’s dollar bonds are still attractive after a three-month rally because regional economies are stronger than those of the U.S. and Europe, said Lion Global Investors Ltd.

The extra yield investors demand to own emerging-market debt instead of U.S. Treasuries was 6.79 percentage points on Jan. 16, down from October’s six-year high of 8.65 percentage points, according to JPMorgan Chase & Co.’s EMBI+ Index. The spread averaged 3 percentage points in the five years prior to the collapse of Lehman Brothers Holdings Inc. in September.

“Asian credit spreads have come off a bit but there is still some value out there,” said Daniel Chan, chief executive officer of the Singapore-based fund management company that oversees the equivalent of $18 billion in assets. He said in an interview he favors government and corporate dollar-denominated debt in South Korea, Malaysia and the Philippines.

Lehman’s bankruptcy prompted U.S. and European investors to raise cash by selling emerging-market assets, causing the MSCI Asia Pacific Index excluding Japan to drop 53 percent last year, compared with the 34 percent decline in the Dow Jones Industrial Average. Asian banks avoided the worst of the credit losses after regulators tightened lending rules following the regional currency collapse in 1997.

“Asian markets have been sold off far more than the U.S. and Europe even though the fundamentals here are better,” said Chan. “Banks and corporations in Asia are far healthier after the 1997 crisis.”

Currency Outlook

Lion Global is a unit of Oversea-Chinese Banking Corp., Singapore’s oldest bank. It was formed in September 2005 in the merger of OCBC Asset Management Ltd. and Straits Lion Management Ltd. Chan, one of the founders of Lion Global, was formerly the chief executive officer of Straits Lion and prior to that was chief investment officer of UOB Asset Management.

Financial companies in Asia have reported $31 billion in credit-market losses since the start of 2007, compared with $1.04 trillion worldwide, according to data compiled by Bloomberg. The World Bank predicted on Dec. 9 growth in developing economies will slow to 4.5 percent in 2009 from 6.3 percent last year, faster than global expansion of 0.9 percent.

Asian currencies have extended last year’s losses with nine out of the 10 most active currencies excluding the yen down against the dollar since the start of the year. The Korean won fell 7.7 percent this month after dropping 26 percent last year.

“Asian currencies won’t weaken much from current levels as Asia’s economic fundamentals are relatively strong,” Chan said. “Currently, the weakness is from repatriation to the U.S. which I see as temporary. They should bottom out soon, maybe by the middle of the year.”

South Korea

South Korean bonds are attractive as falling oil prices and support to exporters from a weaker won improve the nation’s trade balance, Chan said. The benchmark bond due December 2016 yielded 5.27 percent as of the close on Jan. 16, according to data compiled by Bloomberg, down from a record high of 8.25 percent reached on Nov. 10.

South Korea posted a $2.06 billion current account surplus in November, the second consecutive month in the black, the Bank of Korea said on Dec. 10. The figure was in deficit in every month but three last year.

Chan also favors bonds linked to Malaysian state-owned investment arm Khazanah Nasional Bhd., Russian oil-company debt and securities from Middle-Eastern countries like Abu Dhabi. Lion Global on Jan. 7 started marketing its LionGlobal Opportunities Fund, aimed at global equities and fixed income.

The investment climate will be “challenging” as risk aversion is still the dominant theme this year, Chan said. “Most of the pension funds and institutional investors are still not clear on what they want to do,” he said.

To contact the reporter on this story: Patricia Lui in Singapore at plui4@bloomberg.net