International Investments in Asian Bond ETFs


International investments may be better by switching from Asian equities to Asian bonds.

Yesterday’s BBC News about international investments reinforces the benefits of this idea and suggests that Asian equities may be on their way down. Here are excerpts of this article:

International Investments Excerpt

“The stock market slump in Europe and Asia has entered its second week, pushing the UK’s main share index below 6,000 for the first time since October.
In the past five sessions, about £111bn has been wiped off the FTSE’s value. The drop mirrored heavy losses in Europe and Asia, with investors dumping stocks because of concerns they are overvalued and growth will slow. “Nothing here would surprise me for the rest of the day. I just don’t think anyone knows where the emotion and reaction is going to take us," said Michael Vogelzang, president of Boston Advisors.

“When there’s such a big market move in such a short period of time, there’s that element of surprise and confusion The current stock slump was triggered last week by the biggest drop on China’s market in a decade. That fed into fears about the state of the US economy at a time when many investors were questioning whether share prices had risen too far too quickly. Many of the world’s top indexes and shares had climbed to levels not seen since the dotcom bubble burst in 2000.

“On Monday, Japan’s Nikkei 225 had its worst day since June – largely a result of the continued rise in the yen – which hit its highest rate against the dollar in three months. A strong currency makes Japanese goods more expensive abroad and cuts the profits of Japanese firms when overseas earnings are brought home. It also means that investors who borrowed yen to take advantage of low interest rates and then put the cash into assets such as equities, would now be looking to close positions and pay off their loans, analysts said.”

The article outlines that Japan’s Nikkei closed 3.4% lower its lowest level since December and the largest daily plunge since June 2006. Shanghai’s composite index lost 3.5%, Taiwan shares was down 3.7%, and the main Indian market had its lowest close in five months.

An excellent February 2007 article about international investments entitled Asian Bond Markets: An Overview by Chris Wright suggests that Asian bonds may be on their way up. Here are excerpts from that article:

“Asian corporate issuers find themselves in an enviable position. What also caught the eye was how the market reacted to a crisis. At the end of December 2005, a Chinese aluminum extruder called Ocean Grand Holdings tapped the market for $125 million with a five-year bond through ABN AMRO, taking a further $35 million in March 2006. Then, in July, the company discovered fraud at one of its mainland subsidiaries. It would go on to default. Bonds performed badly and the market closed to new issuers. But it didn’t stay that way, and that’s what’s interesting. Investors recognized that the fraud was company-specific and were able to differentiate between that situation and the broader market – in a way that many feel they previously would not have done. All high-yield bonds, and particularly those in China, went down, but were then bid up again by opportunistic value investors, an investment class new to the region that provides a useful backstop to sliding sentiment.”

This suggests that international investments may prosper as the Asian bond markets are maturing and will grow in importance to global portfolios.

The article goes on to add: “The pipeline looks strong, too. The broader high-yield markets – which encompass public bonds, private financings and leveraged loans – had the best year ever in 2006, and I expect 2007 to exceed this, driven by many of the same factors plus the catalyst of LBO and M&A activity,” says Mark Leahy, head of Asian debt syndicate at Deutsche Bank. He expects these markets to see issuance of $25 billion to $30 billion this year.

So let’s look at more Asian bond mutual funds.

One Asian bond fund for international investments is the Legg Mason Asian Bond Investment Trusts traded in Singapore.

Legg Mason Asset Management (Asia) Pte Ltd (Legg Mason Asia) is wholly owned by Legg Mason Inc., a 100-year-old U.S. based financial services holding company that provides securities brokerage, asset management, trusts and investment banking services. As of 31 March 2005, Legg Mason, Inc. was responsible for US$373 billion of assets under management invested in a broad range of global equity, fixed interest, and currency products through its subsidiaries. The company manages numerous Asian bond funds including the Legg Mason Asian Bond Trust, Legg Mason Singapore Bond Class A, B and Y.

The Asian bond fund has risen 29.5% in Singapore dollars the past five years or about 6% per annum. One interesting aspect for US investors as there is a Singapore based electronic mutual fund sales company called www.fundsupermart.com

A look through this website suggests that non Singaporians can buy international investments through this service. There is even a specific sign up form for non Singapore corporate accounts. The signup procedure looks like a bit of hassle but considering how hard it is for US residents and citizens to buy such funds, this may provide an option.

Another way to make international investments is though the Ing Thai Asian USD Bond Fund. Ing is one of the Netherlands’ largest investment banks and this is an open-ended fund that invests Asian bonds, money markets and deposits for investment opportunities and risk diversification. The fund is up 7.21% in the last nine months as of February 23, 2007. HSBC (one of the world’s largest banks) in Bangkok is a dealer for these Ing Thai funds so investors opening an account there would be able to buy this fund.

Yet I suspect that both of these funds will be cumbersome for US investors or perhaps any investor outside Singapore or Thailand.

One alternative came from a reader who shared this thought:

“We’re invested in Aberdeen Asia-Pac Income Fund… not a sovereign bond fund but could achieve the same ends. Cheers,”

Aberdeen’s US website says: “Funds for sale in the US. Aberdeen manages 3 closed-end funds; Aberdeen Australia Equity Fund, Inc., Aberdeen Asia-Pacific Income Fund, Inc. and Aberdeen Global Income Fund, Inc. Aberdeen Asia-Pacific Income Fund, Inc. The Fund’s investment objective is to seek current income. The Fund may also achieve incidental capital appreciation. The Fund will seek to achieve its investment objective through investment in Australian and Asian debt securities. To achieve its investment objective, the Fund may invest up to 80% of its total assets in "Asian debt securities", and may be denominated in an Asian Country currency or in Australian, New Zealand or U.S. dollars. Asian Countries include China, Hong Kong, India, Indonesia, Japan, Malaysia, Pakistan, the Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam, and such other countries on the Asian continent approved for investment by the Board of Directors upon the recommendation of the Investment Manager. At least 20% of the Fund’s total assets will be invested in Australian debt securities".

This fund provides one avenue for US investors.

A simpler way to make international investments in Asian bonds is through an Asian Bond ETF (Exchange Traded Funds).

Bond ETFs are common in the US and Europe, but new in Asia. They really only began in 2005 when eleven big financial institutions coughed up $2 billion to create a huge basket of Asian bonds that are traded on several Asian stock exchanges and is called “the Asian Bond Fund 2”.

A bond ETF aims to track a basket of bonds issued by a range of issuers and of different maturities along the yield curve. In terms of operation, a bond ETF is just like a bond mutual fund, but is bought and sold as a share on a stock exchange. The difference is that a bond fund manager will try to outperform the bond index by selecting a mix of bonds or currencies that have higher interest or are likely to appreciate. The ETF simply tries to emulate the index.

The Asian Bond Fund 2 called ABF2 is a Pan-Asian Bond Index Fund (PAIF) that invests in local currency-denominated bonds issued in the eight Asian markets, China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore and Thailand.

Here is what the Hong Kong Stock exchange says about this ETF: Stock Code – 2821. Listing – Stock Exchange of Hong Kong. Common Name: PAIF. Currency Quoted – US$. Trading in board lot of 10 units. Invested in local currency denominated bonds issued by both government and quasi-government organizations in China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore and Thailand. Investment Style-Passive. Average Credit Ratings of the bonds held by PAIF – A- / BBB+. The average yield as of March 2, 2007 is 4.37%.

This means that if your investment bank or broker can trade on any of the Asian stock markets they should be able to buy this ETF for you.

I contacted my account executive at Jyske Bank and asked if he can buy this stock for me. His reply was:

“Yes, we can buy 2821 on Hong Kong. Please note that the volume in the fund is very low and I recommend that you operate with a limit if you wish to buy into the fund.”

This means that because these shares are not widely traded if you offer to buy at market, your order can push the price too high. You need to set a price you are willing to pay for the share.

Jyske Bank is the second largest Danish bank, with 450,000 domestic clients, 35,000 international clients, USD 23 Billion in total assets, and a moody’s rating of A1. Jyske Bank Private Banking is a business unit of the Jyske Bank Group, catering exclusively for international private investors from 180 different countries through offices in Copenhagen, Switzerland and Gibraltar. They have over 35 years of specialization in private banking and offer a full range of private banking services – deposit accounts available in several currencies, dealing in all tradable bonds and stocks, mutual funds, leveraged (geared) investments and structured (capital guaranteed) products.

Denmark is ranked by Moody’s as the safest country in the world in which to have a bank account.

You can get more details from Thomas Fischer at Jyske Bank. His address is Fischer@jbpb.dk

With the help of Jyske Bank we track five multi-currency portfolios. Our next update of these portfolios will show how well the equity portfolios survived the current equity drop and how this performance compares to the portfolios that contain higher weightings in bonds. You can learn how to track these portfolios with us at http://www.garyascott.com/catalog/bldh/

Our courses Mar. 16 -18 International Investments and Business Made EZ Course in Ecuador will include two account executives from Jyske Bank who join with me to update global currency values and economics. We’ll do an in-depth examination of potential for Asian bonds at this course. See http://www.garyascott.com/catalog/IBEZec/

This course will be updated May 25 – 27, 2007 in North Carolina. Thomas Fischer joins me to update global economics there.

Ecuador Exports

One reason Merri and I support courses here is to develop exports that help the children. Our hotel is owned by Land of the Sun Foundation. See www.landofthesun.org.

In our years of making donations down here, we have learned a lot about giving. There are people here who are homeless and are not totally competent. They need help and we feed them at the hotel. The children need help and we have organized a fund and a children’s lending library. Then there are those who wish to work but cannot find employment. LOTS (Land of the Sun Foundation) main goal is to create true employment. We run the hotel and an expanding real estate rental service. We also fund free English courses and computer science programs so locals can compete from Cotacachi in other markets with their computer skills.

All proceeds from the profits of the hotel go to programs such as feeding the poor, the library, teaching English and computer skills, providing scholarship and creating employment.

The best way to have never ending wealth is with your own business. This is why we have been encouraging people to learn how to earn globally with Ecuador imports and exports. This is also why I am upgrading the photos at our website with the help of our friend, Todd Smith. Todd, a professional photographer, came down and has taken hundreds of pictures to help share in visual form the excitement of our courses in Ecuador. Today we look at some shots Todd has taken of the kids. You can learn how Todd can help you by contacting him at todd@toddsmithphotography.com.

Join Steve, our man in Ecuador, April 20 – 25, Friday to Wednesday. for the Spring Import-Export Course.

Until next message, may your international investments and business be good.

Gary


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