World Business

Emerging market bonds lure investors

By Lilian Karunungan and Garfield Reynolds (China Daily)
Updated: 2010-04-17 11:41

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SINGAPORE - Emerging-market bond funds received an unprecedented $1.8 billion in the past week, lifting 2010 inflows to a record, as high-yielding debt attracted global investors away from stocks, according to EPFR Global.

Currencies in emerging markets have appreciated this month, boosting returns on debt, and at the same time helping to curb inflation and preserve the fixed payments on bonds. Investors in global equities pulled out $6.2 billion in the week to April 14 on prospects accelerating economic growth will prompt policymakers to withdraw stimulus measures.

Investment in developing nations' bonds reached $10.4 billion, exceeding an all-time high in 2005, the Massachusetts-based research company said in an e-mailed statement.

Inflows into US floating-rate notes were also a record and all bond funds took in $5.6 billion, EPFR said.

"There's a global reallocation going on," said Kenneth Akintewe, a Singapore-based portfolio manager at Aberdeen Asset Management Plc, which oversees the equivalent of $221 billion globally.

Given the choice between "debt-ridden countries" like the United Kingdom, the United States and Japan, and "emerging-market economies with substantially good fundamentals, then you expect to see that global reallocation taking place".

Yields on 10-year local-currency notes in Brazil of 13 percent and 8.6 percent in Indonesia, compare with 3.8 percent on US Treasuries, 1.345 percent on Japanese bonds and 3.13 percent on German bunds.

Twenty-one of the 26 emerging-market currencies tracked by Bloomberg data have appreciated against the dollar this month, led by the Turkish Lira and Brazil's real.

Singapore, which use its currency rather than interest rates to set monetary policy, unexpectedly revalued its currency on April 14 after the economy expanded at a record pace in the first quarter and predicted faster inflation.

Central bankers in Australia, Malaysia, India and Vietnam have all raised borrowing costs this year.

Bloomberg News