Fund manager likes Taiwan debt, wary on Philippines

HONG KONG -- Bond investors looking to Asia should favor issues from Taiwan and Singapore, as both markets are likely to be supported by strengthening currencies, a BEA Union fund executive said Monday.

But Indian and Philippine debt markets should be approached with caution, given the risk that authorities in both countries fall behind the curve in tackling inflation, added Henry Wong, head of fixed income for the firm, which manages about $2.1 billion.

The Hong Kong-based fund manager also favors the debt markets of Hong Kong and Malaysia, but believes that given the risk of central bank tightening, investors are best off buying short-term issues and avoiding the long end of the yield curve.

"We are now having an inflation problem as a whole. That is why, initially, we will be more concentrated or focused on the short-dated scenario," he told Reuters.

"We favor those more developed countries because they are able to tackle this inflation problem."

Wong, who helps manage about $450 million, said investors should also favor the debt of Asian energy and telecom firms, which are more likely to be supported by steady cash flows, while avoiding the bonds of exporters vulnerable to the slowdown in global economic growth.

RISK OF INDIA DOWNGRADES

The fund manager made the comments as the firm, which is owned by Bank of East Asia and Germany's Union Asset Management Holding AG, prepared to launch the BEA Asian Bond and Currency Fund in Hong Kong and mainland China.

The firm is targeting a $50-million launch for the fund, and is looking for about 60 percent of assets to come from mainland Chinese savers investing through the country's Qualified Domestic Institutional Investor program.

The former head of fixed income for the Asian arm of BNP Paribas Asset Management said a major challenge for the Philippines was the rising food and energy costs.

The country gets almost all of its crude from abroad and is the world's biggest rice importer. Its peso currency slid by over 6.0 percent this year, adding to the inflationary impact of rising import prices.

With India, a recent favorite of foreign investors, Wong is concerned about the ability of the country's ruling coalition to cope with the turnaround in the country's economic fortunes.

Analysts say India's investment-grade foreign debt rating is in danger of being cut back to junk status as slowing economic growth, rising inflation and growing debt wreak havoc on the country's finances.

This month, Standard & Poor's said the rising cost of subsidies, debt write-offs and public sector wage rises had increased the risk of a downgrade of India's BBB-minus rating, the lowest investment-grade rating.

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