US rate hike would make Asian bonds more attractive: expert

Asian bonds will become more attractive to investors if the US Federal Reserve makes gradual increases in its funds rates, a bond market expert said Wednesday.

“Learning from past experiences, yields of Asian bond funds rose during periods when the Fed raised its rate,” said Ooi Boon Peng, the chief investment officer of Eastspring Investments based in Singapore at a press conference in Yeouido, western Seoul.

“(The) restructuring activities under way in many Asian countries are increasing the appeal of their bonds to investors,” he said. “(The) fundamentals of Asian markets are steadier than other emerging markets.”

Between 1998 and 2000, Asian bonds produced 15.71 percent in yields, according to data provided by the company. During the 2003 and 2006 period, the yields were 12.62 percent.

“The US is expected to hike the rate gradually, considering the recovering job market, but if the US economy slows again, there are possibilities that the Fed might use unconventional measures again,” he said. Ooi forecast the Fed would adjust the key rate in December. 

Once Korea nears the completion of its shipbuilding and shipping industries, market conditions will improve further, Ooi commented.

The chief investment officer, in particular, mentioned China, India and Indonesia as good cases of economic restructuring, citing how the Asian bond market -- overseas currency-denominated bonds -- is growing at a fast rate, from $246 billion in 2005 to $953 billion as of 2015.

Local currency-denominated bonds also grew from $2.1 trillion to $9.1 trillion for the past decade.

Asian corporate bonds and high-yield bonds have higher credit ratings than US and European corporate bonds and demand for dollar-denominated Asian bonds is expected to continue to grow due to negative interest rates in Europe and Japan, Ooi said.

Eastspring, a member of the London-based Prudential Group, runs $34 billion worth of funds by investing in Asian bonds exclusively. Its Korean subsidiary was established in 2001 and runs about 13 trillion won of funds as of September. The company is preparing to launch a dollar-denominated Asian bond fund soon.

By Song Su-hyun  (song@heraldcorp.com)