Emma Wall: Hello and welcome to the Morningstar Series "Why Should I Invest With You?" I'm Emma Wall and I'm joined today by Kheng-Siang Ng, Head of Asia Pacific Fixed Income for State Street Global Advisors.
Hello, Kheng.
Kheng-Siang Ng: Hi, good morning.
Wall: So, we are here today to talk about the Asian fixed income market, quite different from the one in a developed world. At the moment in developed world we've got very low interest rates. Although, the gap between U.S. yields and German bond yields is wider than it has been in quite a long time. Do you see that sort of divergence that disparity within the Asia market or is it more homogenous sector that's still rallying?
Siang Ng: The Asian bond markets themselves are pretty non-homogenous because after different state of developments in the different economies, the fundamentals are different and they are also faced with different challenges as well. You have the very low interest rate countries like Hong Kong; obviously the currency board regime to the U.S.; you have the Singapore very low. Those moving up a bit middle Korea, China, Malaysia and the very high yields like the Indonesia. So, you do get a very fair spread of differences in the interest rate levels.
Wall: So, with that in mind, where are the greatest opportunities within the region at the moment?
Siang Ng: I think for at least point in time I'll probably go for more of the conservative type of strategies in terms of opportunities. No doubt that in some of the higher-yield countries like Indonesia, you would get a lot of yield, but I think near-term there will be still some risks. Investors need to pay attention to the development of the budget deficits, the currency weakness and so on.
I think Indonesia could be a good opportunity in the medium term. But I guess you are talking about near-term investment, I think you'd probably go for more of the safer ones like, for instance, Korea. China obviously is not accessible. But if you can get access to China, I think that would be also a good country to consider.
Wall: What are the risks then in this region? You mentioned there, the political risks of deficits, of economic instability. Is that something that you consider when looking at where to invest?
Siang Ng: Certainly. I think when we look at the countries or the bond markets to invest in, we look at first the fundamental factors, both the GDP levels, the inflation, the monetary policy. So, you need to include some of the so called less quantifiable type of factors like the political situations and also potentially the capital flows implications because investors these days, as you know, they are pretty concerned about emerging markets.
So the moment they hear about Asian markets depending on whether they are familiar with it or not, they may tend to be pretty cautious. So I think that are some of the considerations we need to take into account.
Wall: Equity investors are seeing quite a lot of opportunities created by this Southeast Asian countries coming together, The ASEAN Agreement, is that also creating fixed income opportunities?
Siang Ng: I think for the fixed income perhaps is less so in the sense, because the bond markets are still driven by the relevant monetary policies by the central banks. But one of the things that is pretty common as well is we are seeing the increasing trade linkages, which means that the countries have a tendency to grow in a pretty similar cycle as well in a sense that if some countries are doing well their trading partners would benefit as well.
So I think from that sense the ASEAN story does have some part to play, but it's playing through the economic fundamentals rather than through the direct bond market impact.
Wall: Kheng, thank you very much.
Siang Ng: All right. Thank you.
Wall: This is Emma Wall from Morningstar. Thank you for watching.
