Bonds of China developers looking attractive: Forti

SINGAPORE: Chinese property developers' bonds, helped by attractive yields and the falling number of issues, are starting to draw investor interest, Fortis Investment said.

"We are not as negative on Chinese developers as before and we have started to nibble," Adeline Ng, head of Asian fixed income at Fortis. "Nine to 13 percent is a good carry."

Ng, who manages US$1.2 billion at Fortis Investment, now part of BNP Paribas, also said she favours bonds issued by Asian banks as the sector will benefit from strong regional economic growth and loose monetary policy.

The turmoil in Europe will continue to favour Asian banks and developers, Ng said, as Asian central banks, with the exception of China and India, will likely refrain from tightening till next year.

"We started the year feeling that most of the central banks except for maybe one or two will tighten policy, but now I think it's actually the reverse," she said.

Chinese developers have been the largest issuers of high-yield dollar-denominated bonds in Asia ex-Japan this year, accounting for over a third of total issues. The firms that recently sold bonds include Kaisa, Country Garden and Singapore-listed Yanlord.

The bonds, issued with coupons of 8-12 percent earlier this year, have seen their spreads widen over the past month on general risk aversion arising from the problems in the eurozone and as China stepped up efforts to cool its housing market.

Ng said China's efforts to cool its housing market were aimed at ensuring affordability and price stability, and it was not in the government's interest to engineer a collapse in property prices.

She declined to discuss her specific bond holdings, citing company policy, but data from information providers showed that the fund she managed for retail investors had large positions in United Overseas Bank, Philippines' National Power Co (Napocor), and Malaysia's Public Bank as at end-March.

That fund, the Fortis L Fund - Bond Asia ex-Japan, has returned 6.6 percent in the four months to April following a 30.9 percent gain in 2009, beating the HSBC Asia dollar bond index, which rose 4.4 percent in the first four months of 2010 and 25.4 percent last year.

Turning to other areas, Ng said she has reduced her exposure to Indonesian and Philippine bonds as yields have fallen relative to other Asian countries such as South Korea.

"Korea is single-A whereas Philippines and Indonesia are sub-investment grade... The market got ahead of itself in terms of investment grade pricing," she said, adding the two countries will probably see their sovereign ratings upgraded to BBB levels in the next 1-2 years rather than some time in 2010.

In contrast, Korean bonds look attractive given their relatively high yields and weakness in the currency due to concerns arising from North Korea's torpedo attack on a South Korean warship.

"Tensions between North and South Korea have always been there. It's whether it's toned up or down," she said. - Reuters
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