Mon, Apr 21, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Opalesque Industry Update - Asia will continue to grow regardless of global economic conditions

Thursday, June 23, 2011
Asia will attract increased investor flows whether the global economic recovery begins firing on all cylinders or splutters to a temporary halt, according to Legg Mason Source subsidiary Western Asset Management, which manages $456bn of fixed income assets across the globe.

While markets remain concerned about the fragility of the global economic recovery amid heightened geopolitical risks, Julia Ho, a portfolio manager on the $627m Legg Mason Western Asset Asian Opportunities Fund, says the underlying fundamental story should remain positive, particularly for Asian bond, currency and credit markets.

“Asia is in a somewhat unique position of potentially win ning in both a positive and negative global scenario,” she says. “If the global economy begins firing on all cylinders, investors on the sidelines might start feeling the confidence to deploy more capital into Asia, and investors that are already in Asia will begin to allocate more heavily to riskier investments such as currencies and credit.

“If the economy experiences a misstep, investors will quickly retrench and a flight-to-quality will ensue, thereby benefiting government bonds. But we could also see investors redeploy capital into Asia as a diversifier to their own regions, simi lar to how we saw large flows from Europe over the past couple of years.”

A key risk to this constructive outlook, says Ho, is inflation expectations. While she believes policymakers in most Asian countries have done a “respectable” job of controlling inflation expectations despite strong growth and burgeoning com­modity and food prices, she says they must remain vigilant.

“A sharp increase in inflation expectations could be detrimental to bond and currency prices. With inflation pushing upward, we expect central banks to continue to deploy the many tools in their arsenals, including targeted measures, such as those taken in Singapore and China to cool the property markets, as well as broad policies such as increasing policy rates and allowing their currencies to strengthen.”

Against this backdrop, Ho says the Asia team at Western will remain tactical in its approach to interest rate management, continuing to favour an overall defensive duration posture, in which Western’s bond portfolios maintain underweight short-term rate positions in favour of long-term rates. The team also expects to maintain its overweight to appreciating currencies in the region. “We expect Asian currencies to benefit from several trends, including strong fundamentals, investor flows to Asia from lower-yielding markets, higher central bank rates and policymakers’ use of currencies as an inflation-fighting tool.”

Ho says the positive fundamental backdrop will also support the team’s preference for Asian corporate bonds.

Press Release
bc

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Banner
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing
  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Opalesque Exclusive: Classic Auto Funds Limited (CAF) launches several car investing funds[more]

    Bailey McCann, Opalesque New York: A new trend in alternative alternatives is emerging - car appreciation funds. Classic Auto Funds Limited (CAF) is the first to market with several funds that make super elite luxury cars into real asset investments. As a result of growing overseas demand couple

  2. Investing – Big hedge funds bought Puerto Rico's junk bonds, Fidelity explores new trading venue amid flash trade concerns, Crisis-era Greek bonds reward early buyers with big effective returns, Cargill unit discloses stake in Freddie preferred[more]

    Big hedge funds bought Puerto Rico's junk bonds From Reuters.com: Several large hedge funds doubled down on Puerto Rico in last month's giant bond sale despite the U.S. territory's financial struggles, the Wall Street Journal reported, citing confidential documents reviewed by the newspa

  3. Opalesque Exclusive: Hedge fund replicators evolve[more]

    Bailey McCann, Opalesque New York: Hedge fund replicators as a group of products tend to get a bad rap from hedge fund managers who suggest that the best a replicator can offer is dynamic beta capture. A

  4. Opalesque Exclusive: Pensions, endowments, family offices reconsider life settlement investments[more]

    Bailey McCann, Opalesque New York: Hedge funds were once the largest investors in the life settlement industry, now the industry is seeing more interest from pensions, endowments and family offices directly. Life settlements have always been considered a niche part of the investing landscape, an

  5. SEC allows investment funds to use social media[more]

    Bailey McCann, Opalesque New York: The Securities and Exchange Commission (SEC) has released new guidance letting investment funds and advisors use social media to promote client reviews. The guidance seeks to assist investment managers in developing compliance policies and procedures reasonably