[HONG KONG] Morgan Stanley Investment Management is favoring bonds of India, Indonesia and the Philippines in Asia, after taking advantage of January's rout to boost emerging- market holdings.
"We have been rotating to emerging markets in the first quarter, first from a valuation perspective as things just got so beaten up," Mike Kushma, chief investment officer, Global Fixed Income, at the company, which oversees about US$406 billion in assets, said in an interview in Hong Kong last week.
Warren Mar, portfolio manager, Emerging Markets Corporate Debt, said he likes telecommunications companies and blue chips in India, Indonesian developers and utilities, conglomerates and utilities in the Philippines.
Asian developing-market debt is seeing a return of inflows after an exodus during a rout in January, when the yuan slumped, commodity prices collapsed and almost US$6 trillion was shaved off global stocks.
Indonesian sovereign debt saw US$1.3 billion of net buying this month, while all Indian bonds had inflows of US$453 million, benefiting from the Federal Reserve's go-slow approach to raising interest rates, a stabilization of China's economy and a recovery in commodity prices.
Improvements in governance are a theme in Morgan Stanley Investment's picks. The administration of Indonesia's President Joko Widodo has implemented a policy framework that is "good for growth" and allowed the central bank to cut rates, said Mr Kushma.
Indonesia and India also both gain as falling oil prices improve their budget deficits, he said. While India's Prime Minister Narendra Modi is going on the right path attacking structural obstacles to growth like the lack of infrastructure, the problems are still there, he said.
"It seems like a very slow pace but they have got their macroeconomic house in order with inflation under control and the budget under control," he said.
"To really achieve progress they need to make a lot of other adjustments, a lot of which are political." Mr Mar said candidates in this year's Philippine presidential election battle had given "comfort there will be policy continuity."
He said that he had been favoring higher-quality issuers in China as defaults among Chinese issuers "raise discussion around credit quality." He is avoiding smaller provincially owned companies and favoring larger state-owned enterprises.
Mr Kushma said a backing off from competitive devaluations and the Fed's change in tack was supporting the outlook for global growth. He also cited commodity prices "settling down" and oil in a range of US$30 to US$45 as supportive for both producers and importers.
"We will grow 2 per cent in the US, and China will slow down little by little, but there won't be any massive problems which is a good environment for fixed income," he said.