Sell Indian bonds, pile into Philippine debt, says Aberdeen
With Indian sovereign bonds capping their best quarter in four years, Aberdeen Standard Investments has some advice for investors: sell them and pile into Philippine debt. The rally has begun to cool, with the yield on the mosttraded government paper hovering near a four-week high, amid concern that the government may miss its fiscal deficit target as it lifts spending before national elections due by May.
“The worry is politics and also fiscal slippage,” said Lin Jing Leong, an investment manager at Aberdeen, which held $384 billion globally as of June. Philippines government debt, on the other hand, is a “high-conviction” buy as inflation is receding, she said.
Overseas funds have sold a net Rs 2,700 crore ($384 million) of the government bonds this year, after raising holdings by Rs 6,000 crore in the last quarter of 2018. Investors have been spooked by reports of Modi’s party considering cash handouts to appease farmers, a key voting block, at a time when government income tax and asset sales is falling short of estimates.
Economic metrics in the Philippines are improving, with inflation in December climbing at the slowest pace since May. Consumer prices will ease further, helped by a base effect from early 2018 when oil prices were elevated, Leong said. Data Thursday showed trade deficit narrowed to $3.9 billion in November from a revised $4.1 billion in the previous month.
Leong said that her base case is that the RBI will continue to provide support for the bond market. Openmarket operations in January will take RBI’s purchases to Rs 2.48 lakh crore in the current fiscal, the highest in over a decade, according to DBS Bank.