News Column

Emerging markets' high-yield bond funds still attract

September 1, 2014

By Nuntawun Polkuamdee, Bangkok Post, Thailand

Sept. 01--Investors' appetite for high-yield bond funds that invest in other emerging markets is expected to remain strong throughout this year, thanks to their higher returns compared with local bond funds.

Even though the US economy is on the road to recovery and the market expects the Federal Reserve to start its rate normalisation by the second half of next year, high-yield bond funds are expected to remain an attractive investment product as emerging markets continue to offer higher returns than developed countries, said Kittikun Tanaratpattanakit, a senior data analyst at Morningstar Thailand.

High-yield bond funds' net asset value increased from early this year, while net inflow to these funds doubled to 400-500 million baht from the first quarter. Popular investment destinations are Brazil, Macao and other emerging markets.

High-yield bond funds invest primarily in securities that are either not rated, or have been rated below investment grade by the major ratings agencies for higher yields.

Mr Kittikun said the funds, which normally have a maturity of 6-12 months, offer returns of around 3% per year, still higher than the local comparative deposit rate of 1-2%. The most active funds are managed by asset management firms under banks, which have a large investor base.

Kesara Manchusree, president of the Stock Exchange of Thailand, said investment in mutual funds yielded 14% a year on average over the past five years. Equity funds offer higher returns than other types of fund in the long term.

In the meantime, Smith Banomyong, president of SCB Asset Management, said Thai equities still have an upside gain this year. He referred to SCB Securities' forecasts that the SET Index target will hit 1,600 points this year, and listed companies' earnings will grow 4-5% this year and jump to 12-15% next year.

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Source: Bangkok Post (Thailand)

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