They know buyers will lap it up no matter what mah...
Again, goes to show that a lot of people think that the low interests will not end in 2015..
Originally Posted by sherlock
Newbie
They know buyers will lap it up no matter what mah...
Again, goes to show that a lot of people think that the low interests will not end in 2015..
Lazy Bum
Which is precisely worrying... it seems that any small cap companies can issue bonds just like that. And the investors seems unperturbed and continue to lap it up blindly.
When the tide turns... there will be nowhere to hide
When you have eliminate the impossible, whatever remains, however improbable, must be the truth
Junior
OSCHADBANK -3rd largest bank in Ukraine - 100% state ownership
XS0906434872
Rating B3 / B
Coupon 8.875% USD
Maturity date : 20th Mar 2018
Price - 99.25
YTM - 9%
LTV 50%
Need to find out whether it is worth to buy.
rdgs,
Vic
Junior
I think it is a very basic question that needs to be asked if people asked for loan.
How come you are not getting the loan from a bank with lower interest rate?
Junior
Latest IPO Perp bond from Citi pacific.
Citi pacific LTV given is 60%. There are in the steel industry.
Issuer: CITIC Pacific Limited
Issuer Senior Rating: Ba1 (Moody's) / BB+ (S&P)
Exp Issue Rating: Unrated
Product: Perpetual Subordinated Capital Securities
Maturity: Perpetual non-call 5.5
Documentation: Regulation S registered
Issue Size: US$ Benchmark
Guidance: 9.0% Area
Distributions: Semi-annual, fixed for first 5.5 years at the
Initial Distribution Rate, then resets at Year 5.5
and every 5 years thereafter at UST5 + Initial Spread
Initial Spread: Initial Distribution Rate less UST5 yield
Step Up: 100 bps from Year 10.5
Optional Deferral: Cash cumulative and compounding subject to dividend
pusher on junior obligations (3m lookback) and
dividend stopper on junior/parity obligations Issuer
Optional Redemption:Year 5.5 and on any semi-annual distribution payment
date thereafter (par) Special Issuer Redemption
Events: Gross-Up Event (par), Equity Credit Classification
Event (MW until Year 5.5, par thereafter),
Accounting Event (MW until Year 5.5, par thereafter) and minimal outstanding amount (par)
Ranking: Subordinated, senior only to ordinary shares
Other Terms: US$200kx1k denoms, HKSE listing applied, English law
Use of Proceeds: For general corporate purposes of the group,
including refinancing of indebtedness
Joint Bookrunners: HSBC/UBS
NetRoadshow: www.netroadshow.com Passcode: Iron2013
Timing: As early as today
NOT FOR PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES OF AMERICA OR IN ANY OTHER JURISDICTION IN WHICH SUCH PUBLICATION OR DISTRIBUTION WOULD BE PROHIBITED BY APPLICABLE LAW.
COMPS/RELATIVE VALUE
CITPAC 7.875% PERP-NC-5 750MM NR NR 100.750 7.579% (YT-STEP: 6.896%)
CITPAC 6.875% JAN-18 1.1BN Ba1 BB+ 107.750 4.995% T+416
CITPAC 6.375% APRIL-20 500MM Ba1 BB+ 103.250 5.796% T+449
CITPAC 6.625% APRIL-21 500MM Ba1 BB+ 103.750 6.021% T+409
CITPAC 6.8% JAN-23 1BN Ba1 BB+ 102.500 6.447% T+452
http://www.bocionline.com/files/bond...pdates_3en.pdf
Junior
The quote U got for ABC/FCX FCN has a good chance that it may get K.O early. I got a quote just for ABX ELN 3 mths just today.
Thanks for the insight and sharing. Yes, Neuberger Bergman HY is mostly in US. The thing I like is that the bonds duration distribution are mostly on the 1-5 years region. Hopefully, the crash will not come so soon... I will put a note on this and tiem for the exit
Today I got a structure for ABX/FCX :
structure 6 months, 60% kickin, 85% strike, callable 100% monthly. Pays 17% p.a
ABX last nite dropped 3%. I am not too concern about FCX. Been following on the news on both. 1 +ve sign i see in here http://seekingalpha.com/article/1408...rd-proposition
I like to read the comments given by the public from SeekingAlpha. Gives me a better feel.
So far comments on FCX is quite +ve. I got a 400k contract on USO/FCX and into my 2nd month. I am 4.3% away from being knocked out. Hope to have some bad news so that I can roll onto the 3rd month.I think i am getting too greedy liao.. but would remember all the forumers' advice.
Amt = US$100k
ELN on ABX.
Spot US$20.30
Strike 80% of US$20.30
3 mths period
Yield only 7.8%
rdgs,
Vic
Newbie
Today's issuance:
Looks like Ezion coupon has come down? Cos they are getting bigger / more accepted by the mkt / industry?
Issuer
Ezion Holdings Limited
Status
Direct, unconditional, unsubordinated and unsecured Notes
Rating
Unrated
Format
Reg S, S274 & 275 of Singapore SFA
Tenure
6 Years
Issue Size
TBD
Payment
Semi-annual, actual/365 (fixed)
Coupon
4.5 – 4.8% area
Price
TBD
Details
SGD250K/Multicurrency Debt Issuance Programme/Singapore Law/CDP
Listing
SGX-ST
Sole Bookrunner
DBS
Timing
This week's business, as early as today
Product risk rating
P4
Newbie
Wah how come the yield drops so much? I thought the ABX is the more volatile counter among the 2.
Yah, I am pretty sure it will get KO. That is why sometime I hope for some little bad news and then some little good news and....
Newbie
Commentary:
*Looking to issue min S$100-150mio. Hearing good demand from institutional clients. Its a mind game.
Quick bring out Oxley so disappointed First Reit subscribers can have their fill or bring out Raffles Education right after Courts has an overwhelming order book. So they dangle another carrot in Ezion which should be an easy sell.
High 4% sounds good, Ezra 5Y 4.875% 04/2018 is going 99.75/100.00 now and interest rates are much higher than last month. That is the closest comparable I would say although Swiber 7.125% 04/2017 is 101.375/101.875 (6.72/6.57%), it is not the same cup of tea.
Ezion should go well, it is the best one of the lot of them. Best financials, profitability etc.
I am thinking perhaps they are about to embark on aggressive business expansion at the rate they are all raising money or locking rates in at the low.
I am neutral on this bond issue and think it will come at 4.5%. Try not to expect a rally in case you are thinking of buying to flip. Too many choices out there.
Other Ezion & Ezra prices.
Ezion 7.8% perpetual (Callable 09/2015) SGD 125 mio 100.50/101.50
Ezion 5.25% 05/2015 SGD 100 mio 102.50/103
Ezra 8.75% perpetual (Callable 09/2015) SGD 150 mio 95.00/96.50
Ezra 5% 09/2015 SGD 200 mio 101.15/101.60
Newbie
Another issue today:
Issuer
State Grid Overseas Investment (2013) Limited
(国家电网海外投资（2013）有限公司）
Guarantor
State Grid Corporation of China
Guarantor Ratings
Aa3 Stbl (Moody's) / AA- Stbl (S&P) / A+ Stbl (Fitch)
Exp. Issue Ratings
Aa3 (Moody's) / AA- (S&P) / A+ (Fitch)
Status
Fixed rate, senior unsecured
Format
RegS / 144A
Total Issue Size
Up to US$ 2bln
Maturity
5 Years | 10 Years | 30 Years
Coupon
1.95% area | 3.41% area | 4.6% area
Initial Price Guidance
CT5+110bps area | CT10+145bps area | OLB(243)+145bps area
Format
$101 Put
Clearing
HKSE listing; US$200k/US$1k Denoms; NY law
Leads
HSBC, GS, MS(B&D), BOCI
Passporting
HSBC, GS, MS, BOCI, ICBCI, JPM, C, DB, UBS
Junior
I will not do anymore ELN/FCN after most of it mature in May/Jun. The way market keep going up really make me feel very uncomfortable.Wah how come the yield drops so much? I thought the ABX is the more volatile counter among the 2.
Yah, I am pretty sure it will get KO. That is why sometime I hope for some little bad news and then some little good news and....
The FCN 4 to 6 mths period leave us in a risky situation if mkt suddenly turn 360 degree into bear mkt. It is just a matter of time it will strike. Totally cannot cut loss at all when it come for FCN. I do not want all my 4 years hard earn money goes into the drain within weeks + more paper losses.
rdgs,
Vic
Junior
Apply for US$1m. Zero allocation. Price to buy now is 102+. Intention buy & sell on the 1st day if possible. But get zero .
rdgs,
Vic
Newbie
My DBS banker hasn't told me about this one, but Tradehaven posted:
*** GUOCOLAND SENIOR PERP-NC-3: UPDATE #1 ***
* NEW SENIOR PERP-NC-3 ANNOUNCED, ANCHORED BY SUBSTANTIAL INTEREST
* PX GUIDANCE AT LOW 5% AREA
* STRUCTURE: SENIOR PERP-NC-3, RESET IN YEAR 3 & EVERY 3 YEARS THEREAFTER,
STEPUP 100BP IN YEAR 3, CoC STEPUP OF 100BP, DIVIDEND PUSHER AND STOPPER
* TIMING: THIS WEEK'S BUSINESS, AS EARLY AS TODAY
** KEY COMPS
HPL 6.125 Subordinated NC 5 perp 103.50, 5.13%
HPL 3.9 2020 100.50, 3.82%
GUOLSP 4.1 2020 100.75 3.97%
GUOLSP 4.875 2016 103.75 3.46%
"But a 3 bio MTN programme, means they can borrow another 1.5 bio more if they like." Quoting myself 1 week ago.
And they will be back for more. And 5% ?? They used to pay 5% for SENIOR papers not SENIOR perpetuals !
The leverage worries me so the SENIOR PERP is a brilliant move because perpetuals are considered equity and it does not make their debt ratios look bad. Small price to pay for damage control.
Anyway I am wrong, market loves Guoco.
Issuer Name Coupon Maturity
Bid Price Ask Px GLL IHT Pte Ltd 4.1 13-May-20 125 mio 100.5 100.8 GLL IHT Pte Ltd 4.35 12-Sep-17 105 mio 101.5 102 GLL IHT Pte Ltd 4 25-Nov-14 100 mio 101.75 102.3 GLL IHT Pte Ltd 5 23-Feb-17 160 mio 103.75 104.3 GLL IHT Pte Ltd 4.25 23-Feb-15 260 mio 101.7 102.2 GLL IHT Pte Ltd 4.125 13-May-15 267 mio 101.6 102.1 GLL IHT Pte Ltd 4.875 11-Mar-16 333 mio 103.203 103.9 GLL IHT Pte Ltd 4 17-Jan-14 205 mio 100.8 101.3
Junior
Risk of investing in Bonds
1 Credit Risk
2. Interest rate risk
3.Liquidity risk
4. FX risk
Credit risk is an investor's risk of loss arising from a borrower who does not make payments as promised
Moody investment grade rating
Aaa , Aa1 , Aa2 , Aa3 , A1 , A2 , A3 , Baa1 , Baa2 , Baa3
Moddy Non-investment grade
Ba1 Ba2 Na3 B1 B2 B3 Caa1 Caa2 Caa3 D
S&P and Fitch investment grade rating
AAA AA+ AA AA- A+ A- BBB+ BBB BBB-
S&P and Fitch Non investment grading Rating
BB+ BB BB- B+ B B- CCC+ CCC CCC- D
Interest rate risk
Interest rate risk affects the value of bonds more directly than stocks, and it is a major risk to all bondholders. As interest rates rise, bond prices fall and vice versa. The rationale is that as interest rates increase, the opportunity cost of holding a bond decreases since investors are able to realize greater yields by switching to other investments that reflect the higher interest rate. For example, a 5% bond is worth more if interest rates decrease since the bondholder receives a fixed rate of return relative to the market, which is offering a lower rate of return as a result of the decrease in rates
Liquidity Risk
In an Liquid market, investors run the risk of either having to retain the bond till maturity or selling it before maturity at an unfavorable price
Issue size = liquidity (US$50M- 300M?) (>US$500m more liquid ?)
Establishing a fair price & price comparisons can be difficult or impossible as there are sometimes no Counterparties interested in the bond.
FX risk
Morgan Stanley 7.625% Aust dollar bond Due 2016
Aud/SGD 1.33 (1st Feb12)
Aud SGD 1.254(1st Jun12)
Aud/SGD 1.285(12th Dec12)
Aud/SGD 1.23 (16th May13)
If U borrow (due to low rate 1.55%) SGD or USD to convert to Aust to buy Aust bond. There is a FX risk which may go against you
Bond Types
Fixed Rate bond (straight bond)
Fixed maturity & fixed cash flow pattern (I.ecoupon)
Eg NOL 4.25% due 2017
Olam 4.07% due Feb 2013
Callable bond
Gives the issues the right to buy back all or some of the issues prior to maturity.
Call price : Specified price at which the bond may be repaid
Eg Hyflux 4.25% 2018. (Callable on 7 Sep15 @ 102.13)
Perpertual bond (some do come with callable term)A bond in which the issuer does not repay the principal. Rather, a perpetual bond pays the bondholder a fixed coupon as long as he/she holds it. Prices for perpetual bonds vary widely according to long-term interest rates. When interest rates rise, perpetual bonds fall and vice versa.
Inflating-linked bond
Pays a fixed coupon + an amt that is linked to a price index to compensate for inflation
* S’pore’s central bank is studying the feasibility of selling
Inflation-linked bonds to help citizens boost on savings amid low interest rate( Bloomberg 9th Jul 2012)
Convertible bond
* Hybrid that combines both equity & debt features
* Holders have the right to convert the bond into issers’s equity in a predominated ratio during a specified conversion period
Eg Keppel land 1.875% due 2015 convertible bond
Conversion price @ $6.72. ( Now trading @3.8)
Bond structure
Unsecured Bond that is not secured by a collateral.
Most bond are unsecured
Secured Bond.
Bond is backed by a Collateral
Eg OUE 3.36% due 2013.
Back by Mandarin gallery & Mandarine Orchard.
Bond seniority
bondholders are credits & therefore have a higher priority calim than equity holders in a liqudation or restructuring scenario.
Senior bond has a higher priority claim than other bonds on the assets issued by the same entity.
Subordinated (junior) bond
A class of bond that, in the event of liquidation, is prioritized lower than other classes of bonds. For example, a subordinate bond may be an unsecured bond, which has no collateral. Should the issuer be liquidated, all secured bonds and similar debts must be repaid before the subordinated bond is repaid. A subordinate bond carries higher risk, but also pays higher returns than other classes
=============================================
Just FYI. Be aware of the risk. Dont know when the big drop will come. Short dated straight bond is safer. Listen to the expert from Tradehaven.
http://tradehaven.me/2013/01/26/bond...kies-paradise/
Bond Market Crash Will Strike By 2016, Expert Predicts By David Zeiler
Not only is a bond market crash inevitable, but it will hit sooner than many think - by 2015 or 2016 at the latest, according to Michael Pento, president of Pento Portfolio Strategies.
"It's the most overpriced, over-owned, oversupplied market in the history of American economics," Pento said of the bond market in an interview with The Street.
rdgs,
Vic
Newbie
Coupon 4.75% to 5.25% range
Junior
I got the FCN quote for ABX/FCX Wed nite.Wah how come the yield drops so much? I thought the ABX is the more volatile counter among the 2.
Yah, I am pretty sure it will get KO. That is why sometime I hope for some little bad news and then some little good news and....
Spot 20.18
Knock 96% of 20.18
Strike 85% of 20.18
Trigger level 75% of 20.18.
Your ABX/FCX quote >1 week ago 60% trigger level has a good chance U may either knock early or get the max payout.
If U will to look at FCN on ABX/FCX. The weakest stock should be ABX. Base on the tigger level 60%. ABX still hv room to go down.
I believe the manipulators are shorting Gold mining stock like ABX looking at the FCN on ABX. The manipulators eventually have to buy back or cover their short positions. If U look at ABX, there are a few gap down during the past 3 mths price movement. US$27 , US$24 , US$22.6 etc.
Somehow, the "GAP DOWN" will need to cover the GAP back .Maybe at US$27 or US$24 or US$22.6. I may not be right. Need those TA expert to explain.
If the gold drop to <US$1300. With all this info, I think it will be better to buy ABX stock maybe at 15 or 16 etc etc. Then patiently wait for the manipulators to cover their short positions to cover the "GAP" back at 22 or 24 or 27. So most of the times, it is better to buy the stock direct when opportunities come rather then do FCN.
Pls take note that my assumption may not be right.
rdgs,
Vic
Newbie
From Tradehaven re Freightlinks:
Market Cap SGD 220 mio coming into the market. How much bonds can you issue ?
Guessing SGD 40-50 mio. So it will not, I repeat, will not be liquid and you will find probably only 1 or 2 banks making a price for the papers.
Issuer: Freight Links Express Holdings Limited
Currency: SGD
Tenor: 4-yrs
Sale Manager: DBS
Timing: As early as today
Issue Format: Reg S, S274 & 275 of Singapore SFA
Expected Issue Ratings: Unrated
Information from person familiar with the matter, who asked not to be identified because the terms aren’t set.
Unless I see closer to 5.5- 6%, I will not waste my time. There are too many questions to be asked about their income statement.
"Net Non Operating Loss" ? 2011 -3.89 mio 2012 -23.24 mio ? and is going up, last 12 m -38.95 mio.
"Abnormal losses" 2011 0.31 mio 2012 -3.62 mio and last 12 m -9.89 mio ? going up ?
Newbie
Official issuance info:
Issuer
Freight Links Express Holdings Limited
Status
Direct, unconditional, unsubordinated and unsecured Notes
Rating
Unrated
Format
Reg S, S274 & 275 of Singapore SFA
Tenure
4 Years
Issue Size
TBD
Payment
Semi-annual, actual/365 (fixed)
Coupon
4.5 – 4.9% area
Price
TBD
Issue Date:
TBD
Maturity Date:
TBD
Details
SGD250K/Multicurrency MTN Programme/Singapore Law/CDP
Listing
SGX-ST
Sole Bookrunner
DBS
Timing
As early as today
Junior
Just FYI.
it was reported that Soros Fund Management LLC, founded and chaired by billionaire financier George Soros, significantly increased its gold related holdings, most notably, through the purchase of over $25 million dollars worth of call options on the GDXJ Junior Gold Miners index.
This stunning move by one of the world’s top performing hedge funds, suggests a powerful surge ahead for gold equities.
rdgs,
Vic
Newbie
I thought he is a bear on gold.
Junior
http://www.livetradingnews.com/georg...m#.UZXcxkraoTA
Junior
He is a biggest WHITE shark Hedge fund mgr. He can short sell & buy at attractive level if opportunities come. Maybe he is the one who short sell most of the mining stocks until it became attractive to buy in again.
U need US$10k to make US$1.5k if U buy ABX at distress price & it need goes up by 15%. U need at least US$100k to make US$1.5k if the FCN get knock out on the 1st observation date. So most of the time it is good to buy stock direct rather then do FCN.
I started to monitor HP stock when it is US$38. When it drop to US$24. Alot of my friends say it is at a very attractive level & they bought it. I came to know Jim Chanos is shorting some tech stocks like HP/Dell etc. It slowly drops to US$20/18/15/13. When HP announced a record .US$1b lost due to accounting scandal, it dropped to US$11+ & suprisingly it close positive at closing end. So the White shark short seller waited for the max fear to come to cover their short. Within week, It goes almost double , US$22
I believe likewise it will happen to ABX. The short sellers need to cover the short. Maybe we need to wait for the max fear to come & buy ABX directly.
Pls take note my observation may not be right.
rdgs,
Vic
Junior
Now USD/AUS spot is 0.9745 against the spot weeks ago @ 1.039. This is how the foreign banks recommend bad investment ideas to us. Never trust their recommendation. They should tell those who have AUS$150k, immediately switch out to US$ @ 1.039 instead recommending the above bad investment idea. Easily 5% lost. It may bounce back to >1.00 mths later.
Try not to do Dual currency deposit (DCI) or Premium currency invest (PCI)
at this low VIX enivronment. Not worth the bet. Chances U will not gain anything from it.
rdgs,
Vic
Newbie
New Issue Review : HDB 5Y SGD 1.368% = 4% with leverage !!!!
by tradehaven Meanwhile as you scrounge for your sad little Guocoland perps, HDB is getting cheaper and cheaper.
This is the highest 5Y coupon I have seen for a HDB 5Y since 2011.
Issuer : Housing and Development Board ("HDB")
Series : 53
Issue Rating : Not rated
Format : S274 & 275 and Reg S Bearer, Fixed Rate Notes (off Issuer's Multi-currency MTN Programme)
Status : Senior, Unsecured
Offering Size : SGD 500 million (with option to upsize)
Tenor : 5 years
Coupon : 1.368 % p.a., payable semi-annually in arrear
Issue Price : 100.00%
Issue Date : 29 May,2013
Maturity : 29 May,2018
Denomination : SGD250,000
Depository : The Central Depository (Pte) Limited
Listing/ Law : SGX-ST / Singapore Law
1.368% compared to the 1.23% earlier in Jan, which I thought was riches then !
Because 5Y interest rates are still 0.92% and 5Y government bonds SGS are at 0.55%.
Take it on leverage which is minimum 80% , banks would offer, and given 6M SOR is 0.40% and 3M SOR at 0.27%. We assume you can get funding at 0.70%.
That works out to be 4.04% return for a senior bond !
Ok, HDB is not guaranteed by the government. It is just an implicit guarantee because they are a stat board and HDB is not exactly churning a profit because they have already spun off HDB Corp into Surbana.
But HDB = Singapore !
PS : YOUR BANKERS WILL NEVER SHOW THIS PAPER TO YOU BECAUSE THERE IS NO INCENTIVE FOR THEM TO SELL IT ! NO REBATE !!
Newbie
Does anyone heard of Mercer funds? They have quarterly portfolio rebalancing feature. Anyone got experience?
Senior
Interesting Article:
Should Asia fear a debt bubble?
Gresik is a small industrial town of fewer than 100,000 people, just to the north of Indonesia’s second-largest city, Surabaya in East Java. But its position is critical.
It sits near the Lombok Strait and the vital trade route for fuel and resources between China and Australia. That is why AKR Corporindo picked Gresik for what it hopes will become one of East Java’s biggest seaports, and the only one tied directly to an industrial estate.
The Indonesian logistics group has invested 675 billion rupiah (S$87 million) of a projected 7-8 trillion rupiah in the first phase of the development of both facilities. One of the most notable things about this investment is where AKR acquired the money: Asia’s local currency bond markets.
These markets have their roots in the Asian financial crisis of 1997-98, but they have bloomed since the global financial collapse of 2008 unleashed easy money.
However, the hot money flooding out of the West in search of higher returns in growing markets has stoked fears about the biggest credit boom in Asia since the spectacular implosion of the late 1990s.
MASSIVE DEBUT DEALS
AKR is just one of hundreds of Asian companies that have never borrowed money from public bond markets before. Bond markets typically give companies longer-term funding than banks and there is no need to put up assets as security. But until only a couple of years ago, many companies such as AKR would have had little or no chance of raising money in this way.
Since the start of last year, a fifth of Asian local currency bonds have been issued in debut deals, according to Dealogic. In the United States and Europe, this proportion is typically less than 3 per cent.
Some debut borrowers have been able to raise large amounts of money. For example, Maxis, a Malaysian telecoms company, raised RM2.45 billion (S$1.02 billion) in its first outing.
Deals such as this have seen Asian markets almost double in size since the end of 2008 to US$6.5 trillion (S$8.2 trillion) worth of bonds outstanding. Companies now make up more than a third of that much bigger market compared with about a quarter at the end of 2008.
So many new — and often higher-risk — companies are borrowing funds at increasingly low rates that there are growing fears about a bubble in Asia and the role of foreign money spilling out of the US and Europe.
What happens when interest rates eventually start to rise, particularly in the US? How much of that money will turn around and flee?
FOREIGNERS OWN UP TO 50 per cent OF DEBT
Asian Development Bank (ADB) Senior Economist Ng Thiam Hee says governments need to be wary of the recent surge in foreign capital inflows. They need to be “prepared for a possible reversal when the economies of the US and Europe pick up again”.
Each new round of ultra-loose monetary policy from Western central banks, known as quantitative easing (QE), has prompted growing flows of money into bond funds that invest in Asia but not Japan. More than US$5.6 billion in retail money alone has flooded into such funds since February last year, according to Citigroup estimates.
The money is coming for obvious reasons. The low interest rates and poor growth levels in the West make Asia a much more attractive place to invest. Consequently, foreigners own much more of Asia’s debt.
A third of Indonesian rupiah government bonds, for example, are owned by foreigners, up from less than a sixth at the end of 2008, the ADB estimates. Others reckon that share is as high as 50 per cent for Indonesia and about 40 per cent for Malaysia and the Philippines. But if interest rates in the West do begin to rise again, how much of a risk will that pose to the stability of Asian economies?
STRATEGIC, NOT SHORT TERM
One big fear is that while the money flowing in is significant for Asian markets, it is much less significant for the investors that have sent it here. In other words, a small decision on moving money back to the West could have a very big impact on Asia.
However, large investors in the region reckon the money coming to Asia is part of a longer-term strategic allocation. Asset managers such as Pimco and BlackRock, which run hundreds of billions of dollars invested in debt around the world, have been increasing staff numbers and capabilities in centres such as Singapore.
Mr Ramin Toloui, global co-head of emerging markets at Pimco, who moved to Singapore to build a deeper Asian business in 2011, says emerging markets have been transformed from the financial basket cases they were a decade ago.
“They have gone from being the world’s debtors to the world’s creditors,” he said.
Because of this shift, some of the world’s biggest bond investors have begun looking at markets differently. Norway’s sovereign wealth fund said last year that it would stop making global investment decisions using bond market indices that are based on how much debt exists in each country, and start looking instead at each country’s contribution to global gross domestic product (GDP).
Other large sovereign wealth and pension funds are expected to follow this move.
“There is a big strategic dimension to the money that is coming to Asia. It is not just a short-term reach for yield driven by central bank action in developed markets,” Mr Toloui says. “Global investors are still so under-allocated to emerging markets’ bonds that any small extra allocation across the industry means massive new inflows.”
LOCAL MONEY IS CRUCIAL
Ms Low Guan Yi, who runs bond funds for Eastspring, the Asian asset management arm of the UK’s Prudential, says that QE has simply forced Western institutions to act more quickly. However, she adds that local money is becoming more important in bond markets as societies become both older and the middle classes grow.
“People’s ideas are changing because of the demographic changes,” Ms Low said. “Previously it was all equity but now people are much more interested in income products.”
Other traders and investors are less sanguine. They estimate that half of the money coming from abroad could prove flighty when the West begins to recover. But they still point to the growth in pension funds, life insurers and bond-focused mutual funds locally in Asia as an important backstop.
Still, the most important factor for financial stability is that Asian companies increasingly borrow in local currencies rather than US dollars. The more mature market of South Korea aside, emerging Asian economies have five times the amount of bonds outstanding in local currencies as they do in US dollars, according to Deutsche Bank.
During the Asian financial crisis, companies and governments held the vast majority of their debt in US dollars. When Western money pulled out of Asia, it put downward pressure on their local currencies, making US dollar debt more expensive for the borrowers. This caused difficulties for companies and governments, and concerns about bankruptcy.
In a vicious circle, the flight of Western money heaped further pressure on local currencies. The collapse of the Thai baht from 25 to the US dollar to 56 to the US dollar at its worst, set off a wave of currency collapses around the region.
If Western money flees the local currency markets now, it will still depress those currencies. But critically, it will not increase the burden of debt upon local companies and governments in the way that it did in the late 1990s.
CORPORATE VS CONSUMER BORROWING
It is equally crucial that overall corporate borrowing levels have been significantly higher in the past. The International Monetary Fund (IMF) describes them as moderate.
But there is still a lot of credit being created in emerging Asian markets. The ratio of bank credit to GDP has hit levels higher than those reached just before the Asian financial crisis, according to Citigroup. However, Ms Johanna Chua, an Asian economist at Citi, says this has been driven by Hong Kong, China and Vietnam, which is already going through a banking crisis. Indonesia, the Philippines, Thailand and Malaysia still have lower ratios than in 1997, she says.
There is growing concern that credit is being created much more rapidly in the consumer sector than in the corporate sector.
A senior official at a regional sovereign wealth fund says: “Emerging market countries have to try and keep their currencies relatively weak to remain competitive in the global economy but this means importing the ultra-loose credit standards of the West. This is driving consumer credit growth in Malaysia, Thailand and the Philippines — that will be a big concern if this situation carries on too long.”
The most reassuring factor for South-east Asia is that its economies are more self-sustaining and mutually supportive than 15 years ago. Thailand, Malaysia, the Philippines, Indonesia and Singapore have formed a crucial trade block among themselves. Indeed the IMF estimates that regional trade is more valuable to each country than trade with any other outside partner. Ports, such as the one planned for Gresik, will be far more important for regional trade than as a global staging post.
But as consumerism grows, South-east Asian countries will need to ensure that they do not follow the West’s more reckless lead in the accumulation of debt. The Financial Times Limited
ABOUT THE AUTHOR:
Paul Davies is the FT’s Asia financial correspondent.
Newbie
A$ has dropped to $1.21... Is this a good time to buy in? Seriously, I also don't know buy for what cos I don't own any property there to pay for mortgage, just thinking of buying some incase I go there for holidays.. Or do dual currency thinggi.. Any advice?
Junior
It may weaken further imo.
Newbie
Today's bond issuance:
Issuer
The Hongkong and Shanghai Banking Corporation Limited, acting through its Singapore branch
Issuer ratings:
Aa2 / AA- / AA-
Expected Issue Ratings:
Aa2 / AA-
Type:
Fixed Rate Notes
Format
Reg S Bearer
Tenor
2 Years
Issue Size
CNH Benchmark
Price Guidance:
2.25% AREA
Price
TBD
Issue Date:
TBD
Maturity Date:
TBD
Details
CNY1,000,000 x CNY10,000, SGX, English Law
Clearing Systems:
CDP with linkage to Euroclear and Clearstream
Sole Bookrunner
HSBC
Timing
As early as today
Product risk rating
P1
Newbie
I think depends what you want to change the AUD for. If just for holidays, then maybe can change a bit first, and if drop some more, then change a bit more, etc. But not too much
As for the dual currency thing, I'm not familiar. But do remember that bank charges you around 1% each time you change in and out, i.e. easily 2% for a round-trip
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