Profiting from Asia's Emerging Bond Markets

Asia's Central Banks have invested 36% more of their money in US Treasuries than in their own bond markets. Want to know how to profit off this theme?

The Economist of 3rd June started with the following eye-catching sentence: "...whereas developed countries are sending more factories and call-centres to the East, Asia long ago outsourced its capital markets to the West."

Asians' US$2.7 trn in forex reserves are parked mainly with the US Treasury. According to the Bank for International Settlements, Asian bonds in local currencies totaled US$1.98 trn at the end of 2005: Asia has 36% more of its money in US Treasuries than it has in its own domestic bond markets!

Some Asian politicians want that US$2.7 trn gradually weaned from the US Treasury and returned to Asia because -

* Stability. When foreigners get nervous, they yank their money out of Asia. So having a larger pool of local capital in Asia would mitigate this effect;
* Shifts. Local companies would reduce their dependence on loans and savers would shift their deposits to local bonds, and
* Profits. With Asia growing faster than America, Asia's Central Banks would make more money investing in Asian then in US Treasury bonds.

Money-making implications: buy into Asian and international banks and technology companies whose profits will be affected significantly once Asian bond markets get developed.

For those with a truly long-term horizon: look at the Pan Asian Bond Index Fund [PAIF], which is listed in Hong Kong. According to the Financial Times of 13th June 2006, p. 29, it invests is domestic sovereign and quasi-sovereign bonds issued by Hong Kong, China, Indonesia, South Korea, Malaysia, the Philippines, Singapore and Thailand. It yields about 4% and the minimum investment is US$1,000. It is billed as a "...one stop shop for gaining access to a basked of local currency Asian bonds."