January 28, 2011

PIMCO: Emerging Asia Junk Debt Offers Best Return for 2011

Indonesia of particular interest to the company’s head of emerging Asia portfolio management

Higher-rated junk bonds in Asian countries where infrastructure spending is fueling growth, such as Indonesia, should offer the best returns in 2011, according to Pacific Investment Management Co. (PIMCO).

With Asia’s emerging economies forecast to grow quicker than its developed nations, investors may be constructive on a region or country, yet individual credit assessment is crucial, Lian Chia-Liang, head of emerging Asia portfolio management for Pimco, said in an interview with Bloomberg in Singapore. “Ideally we like to invest in markets which reside in a neighborhood of growth.”

As the news service notes, Indonesia, Southeast Asia’s biggest economy, will expand 6.28% this year, outpacing the 5.35 percent growth in Singapore and 4.3% in South Korea, according to economists’ estimates compiled by Bloomberg. President Susilo Bambang Yudhoyono, who targets 6.6% average annual growth through the remainder of his term ending in 2014, has pledged to double infrastructure spending to $140 billion.

The nation, with a foreign and local-currency bond rating of Ba1, the highest speculative grade by Moody’s Investors Service, signed an infrastructure agreement worth as much as $24 billion with Japan last month to build projects including a mass rapid transit system for Jakarta and a water plant.

“If Indonesia gets it right I don’t see why they can’t move back to the investment-grade rating they had in the mid 1990s,” Lian said. “A country’s rating upgrade tends to have a salutary effect on its quasi-sovereign and corporate bonds. We view Indonesia as an improving credit story.”

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