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Asian central banks may curb hot money flows: JPMorgan

Asian central banks may curb hot money flows: JPMorgan
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First Published: Thu, Jun 17 2010. 03 15 PM IST
Updated: Thu, Jun 17 2010. 03 15 PM IST
Hong Kong: Asian central banks are expected to follow Indonesia’s move to curb the inflow of more speculative funds that could destabilise markets, JPMorgan Asset Management’s head of Asian fixed income Stephen Chang said on Thursday.
Bank Indonesia on Wednesday adopted measures aimed at shifting funds to longer-term bonds and discouraging short-term investments, including requiring investors to hold any central bank debt for at least a month.
Indonesia’s move came a few days after South Korea’s central bank adopted tighter currency controls aimed at steadying financial markets.
The influx of offshore funds which poured into Indonesian bonds helped the rupiah gain 2.8% versus the US dollar this year, the second best performer next to the Malaysian ringgit, which has risen 4.6%.
While the strong rupiah has helped put a lid on imported inflation, a sudden reversal in the flows could disrupt Indonesia’s financial markets, weaken the currency and trigger more fund withdrawals.
“This is the broader theme in Asia,” said Chang, who helps manage $4.7 billion in Asian fixed income in an interview. “They either have to let the currency appreciate or impose something reasonably moderate that will not discourage foreign direct investments or even trigger any kind of outflows.”
JPMorgan has been upbeat on Indonesian sovereign bonds and some corporate issues, he said, not only for their high returns but also because of the country’s economic fundamentals that are fuelling hopes that its credit rating will be upgraded to investment grade in the next two to three years.
“I don’t think inflows (into Asian credits) will stop because of these measures. If anything, we think it’s longer term positive,” Chang said.
Indonesian sovereign dollar and local currency bonds gained on Thursday, as investors cheered the central bank’s measures.
Chang said he also liked China property bonds, which have fallen in recent sessions as Beijing moved to curb fast rising real estate prices and sovereign issues from the Philippines.
China property bonds “have re-priced and providing better risk reward at this juncture,” Chang said, adding that the government’s tightening measures on the property sector may be over for now.
“On a very selective basis, we are starting to look at it,” Chang said. “It’s been a sector which we have been quite reluctant to participate. But now it’s providing a much better entry point.”
But Chang is underweight on Thai bonds because of the country’s unstable political situation. Thailand was recently rocked by deadly anti-government protests that are expected to hurt the country’s economic prospects.
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First Published: Thu, Jun 17 2010. 03 15 PM IST