Funds still betting on emerging Asia

Emerging market investors — don’t fear the strong dollar, embrace it.

That’s the message from the likes of Nikko Asset Management Ltd and PineBridge Investments who argue the resurgent greenback and lofty Treasury yields present an opportunity to buy — not sell — emerging Asian assets.

The reason? The recent strength in the dollar has made it cheaper to gain exposure to a rapidly growing region. Plus, the money managers say the greenback’s ascent and the sell-off in Treasuries are unlikely to last.

“We are adding risk to our emerging-market portfolios in the current market environment,” said Anders Faergemann, a Londonbased senior fund manager at PineBridge which oversees $90.5 billion (Dh332 billion) globally. “The rise in US Treasury yields this year may be on its last legs as US inflation may be about to peak for the year.” Pinebridge and Nikko are scouring Asia for buys, with Thailand’s baht and Malaysian bonds among their picks, as they look past the volatility to focus on the region’s positive growth and subdued inflation. Indonesian bonds are also on the radar.

The portfolio managers are affirming their faith in Asia even as some investors sour, with 10-year US Treasury yields hovering near the key 3 per cent mark and the Bloomberg Dollar Spot Index trading close to a fourmonth high. A Bloomberg gauge tracking total returns on local-currency emerging Asian government bonds has lost about a per cent so far in 2018, after recording its biggest annual gain since 2010 last year. Appetite for riskier assets has wilted on the back of fears that the rout in Treasuries may not be over and that the Federal Reserve may step up the pace of tightening if inflation accelerates. Asian bonds, which lured over $100 billion the whole of last year, have seen inflows slow as money managers, including those at Goldman Sachs Asset Management, bet that Treasury yields have yet to reach their peak.