Snip ~ "Manulife Asset Management said the opportunity lies in further appreciation of the Indonesian rupiah, the Korean won and Chinese renminbi" 
Singapore, Asia's growing inflation and tight monetary policies that go with it are changing the way fund managers make their investment decisions.
Interest rates, which are a key factor for investments, now take a backseat to make way for currency values as their primary consideration.
And with that, fund managers are investing in assets denominated in currencies that are expected to rally this year.
As interest rates rise, bond prices go down, and that is a disincentive to bond investors.
But instead of flocking to regions with low interest rates, investors continue to find a gold mine in Asian credit markets.
Manulife Asset Management said the opportunity lies in further appreciation of the Indonesian rupiah, the Korean won and Chinese renminbi.
The asset management arm of Canadian-based Manulife Financial has launched an Asian bond fund to ride on these currencies' strength.
Manulife Asset Management managing director for fixed income Endre Pedersen said: "Inflation is going to continue to be on peoples' minds and you'll see central banks continue to increase interest rates.
"We don't think we're going to make much money from interest per se, so what we're doing and looking for is the way to make sure that we're investing in those that are less rate-sensitive.
"Currencies is obviously one way to generate returns".
The strategy works such that when institutional investors lend money to companies or invest in sovereign bonds, the currency by which the asset is denominated becomes a primary consideration.
A bond fund with an optimistic view on the Indonesian rupiah for instance, could buy bonds denominated in that currency.
As investors switch back again to their base currency - US dollar for instance - they will benefit not only from the returns from owning that rupiah bond but also from the exchange rate differentials.
Experts said Asian central banks are more likely to let their currencies appreciate to fight imported inflation from soaring global oil and commodity prices.
Manulife said it expects the yuan to strengthen by at least five per cent versus the US dollar by year end.
The Chinese currency has rallied by 1.3 per cent since the start of this year.
The fund manager is betting on a five per cent appreciation in the Indonesian rupiah and for the Korean won to trade below 1,000 to the US dollar by year end.
Fundsupermart general manager Wong Sui Jau said: "Especially for Asia, we're seeing a hike in interest rates rather than a fall.
"So there are not much returns to be made from there as well. Ultimately, what happens is that currency is the only remaining driver which will actually bring you returns.
"This is coupled by the fact (that) last year's currency made a huge difference in terms of returns.
"So if you're a bond fund manager who picked the country and bonds with the right currency exposure, you'll make a huge difference as opposed to if you didn't care about currencies at all, or if you picked the wrong currencies".
Manulife estimates that between 1997 and 2010, the return on Asian bonds was eight per cent a year, outperforming global indices.
http://www.channelnewsasia.com/stories/economicnews/view/1130937/1/.html
May 24, 2011
Currency values vital decisions for fund managers
Currency values vital decisions for fund managers
Singapore, Asia's growing inflation and tight monetary policies that go with it are changing the way fund managers make their investment decisions.
Interest rates, which are a key factor for investments, now take a backseat to make way for currency values as their primary consideration.
And with that, fund managers are investing in assets denominated in currencies that are expected to rally this year.
As interest rates rise, bond prices go down, and that is a disincentive to bond investors.
But instead of flocking to regions with low interest rates, investors continue to find a gold mine in Asian credit markets.
Manulife Asset Management said the opportunity lies in further appreciation of the Indonesian rupiah, the Korean won and Chinese renminbi.
The asset management arm of Canadian-based Manulife Financial has launched an Asian bond fund to ride on these currencies' strength.
Manulife Asset Management managing director for fixed income Endre Pedersen said: "Inflation is going to continue to be on peoples' minds and you'll see central banks continue to increase interest rates.
"We don't think we're going to make much money from interest per se, so what we're doing and looking for is the way to make sure that we're investing in those that are less rate-sensitive.
"Currencies is obviously one way to generate returns".
The strategy works such that when institutional investors lend money to companies or invest in sovereign bonds, the currency by which the asset is denominated becomes a primary consideration.
A bond fund with an optimistic view on the Indonesian rupiah for instance, could buy bonds denominated in that currency.
As investors switch back again to their base currency - US dollar for instance - they will benefit not only from the returns from owning that rupiah bond but also from the exchange rate differentials.
Experts said Asian central banks are more likely to let their currencies appreciate to fight imported inflation from soaring global oil and commodity prices.
Manulife said it expects the yuan to strengthen by at least five per cent versus the US dollar by year end.
The Chinese currency has rallied by 1.3 per cent since the start of this year.
The fund manager is betting on a five per cent appreciation in the Indonesian rupiah and for the Korean won to trade below 1,000 to the US dollar by year end.
Fundsupermart general manager Wong Sui Jau said: "Especially for Asia, we're seeing a hike in interest rates rather than a fall.
"So there are not much returns to be made from there as well. Ultimately, what happens is that currency is the only remaining driver which will actually bring you returns.
"This is coupled by the fact (that) last year's currency made a huge difference in terms of returns.
"So if you're a bond fund manager who picked the country and bonds with the right currency exposure, you'll make a huge difference as opposed to if you didn't care about currencies at all, or if you picked the wrong currencies".
Manulife estimates that between 1997 and 2010, the return on Asian bonds was eight per cent a year, outperforming global indices.
http://www.channelnewsasia.com/stories/economicnews/view/1130937/1/.html
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