Pyramis Global Advisors, the institutional asset management unit of Fidelity Investments, is eyeing more investments in Asian local currency bonds as a vehicle to expand its global fixed income portfolio.

 

Senior members of the Pyramis fixed income team, including London-based Jamie Stuttard, head of international bond portfolio management; Boston-based Curt Hollingsworth, vice-president and portfolio manager, fixed income; and London-based Nick Eisinger, head of sovereign research and strategy, are currently touring Asia to meet with central bank heads and finance ministers with a view to seeking opportunities in local currency bonds including the dim sum bond market.

 

In a news briefing in Hong Kong, Stuttard says the improving sovereign credit rating of Asian economies like Singapore, Malaysia and Korea  is sharply in contrast to the downgraded sovereign ratings of the US, European countries and Japan.

 

“I think Asian local currency bonds are a great place to invest in. We have spent the last two weeks and we’re going on in the next few days to continue to meet central banks and finance ministers in the region. I think one of the general themes in bond investing worth sticking to is to invest in places that have had their problems over the last 20 years but who have learned from those issues and got their balance sheets in order. This applies to Asian local bond markets,” Stuttard explains.

 

About 80%-90% of the global aggregate bond market is currently made up of the US, Japan and Northern Europe which were triple A and double A rated historically.  “But when you fast forward in 12 months, it’s quite possible that we will continue to see rating downgrades in those big Western developed markets and you have places like Singapore and Malaysia which will hold their ratings or even see upgrades,” he adds.

 

In the dim sum bond market, Pyramis is waiting for opportunities to invest in this asset class. “At the moment, we don’t invest in dim sum bonds for our global portfolios and the reason is liquidity. When you’re invested in corporate bonds, you are investing in an entity whose profitability and dynamics will change. In the dim sum bond market, McDonalds was one of the early issuers, now McDonalds has reported its first quarterly loss in 36 quarters. I’m sure McDonalds will be fine in terms of creditworthiness but it just illustrates how liquidity is important. In the future, we’re very hopeful liquidity will improve and the dim sum market can then take its place alongside [the bond markets in] US and Canadian dollar, euro, sterling, where [these markets] are more liquid on a quarterly cycle,” Stuttard says.

 

“The best opportunity for global bond investors with China is really on the currency side. There has been some appreciation there and the Chinese currency is not as undervalued as it has been historically. That’s where we see the best opportunity,” he remarks.