Investors who chased Asia’s highest real yielders ended up last

MUMBAI: Asia’s highest-yielding bond markets provided the worst returns in August.

Indonesian and Indian debt were at the bottom of the region’s rankings, returning virtually nothing despite real yields of at least 3%. By comparison, Thailand’s debt with real yields of just 0.6%, delivered the standout result. The reason for the dislocation: slowing global growth and rising trade tensions saw investors shun the debt of the less creditworthy nations, pushing down prices and incurring capital losses on investors owning them.

“If global-growth expectations continue to deteriorate and negatively impact risk appetite, this is likely to undermine EM (emerging market) currencies and the bond markets which are correlated with currencies, that is high yielders like Indonesia, ” said Stuart Ritson, portfolio manager for emerging-market debt at Aviva Investors in Singapore. “We are being very selective in positioning in higher-yielding markets.”

Indonesia’s bonds handed investors a small loss last month, even though real yields – nominal yields adjusted for inflation – offered as much as 4.04%, the highest after Egypt of 47 global markets tracked by Bloomberg. A big part of the poor performance was due to selling by global funds, who offloaded a net US$281mil of the nation’s debt in August.

Indian bonds fared almost as badly, returning a skimpy 0.1%. Escalating US-China trade tensions also spurred foreign investors to offload a net US$2.19bil of the nation’s stocks.

Haven demand also hurt a number of EM assets by pushing up the dollar, which prevented central banks from easing policy as much as they would have liked, said Rajeev De Mello, chief investment officer at Bank of Singapore Ltd. “They have seen from past episodes that rising risk premia constraints their monetary policies.”

The attractiveness of the region’s bonds will be tested further this week with the release of inflation data for five local markets: Indonesia, Thailand, South Korea, the Philippines and Taiwan. Annual consumer price index is expected to slow in South Korea, Indonesia and the Philippines, which should push up real yields and make those nations’ debt more attractive. — Bloomberg

Source: TheStar