I recently caught up with Joep Huntjens, Head of Asian Credit at ING and lead manager on the ING Asian Hard Currency Bond Fund, for a review of how the fund has been performing and what the outlook was for 2013 and beyond.
The fund has been hugely successful over the last year and had almost doubled in size, from $130m at the beginning of 2012 to approximately $240m now.
I asked him if there was a real danger of the fund being a victim of its own success in being able to find suitable homes for this additional capital.
He explained that actually over the last few years there has been a huge increase in investment grade opportunities in this sector. This had been due to many new issuances, post credit crunch stasis, but equally it had been due to significant amounts of upgrades on existing offerings. For example EVERY country covered by the fund has been upgraded in the last decade with the exceptions of Vietnam and Pakistan.
Bearing that in mind, the fund only has exposure to 2% of AAA standard assets. Of course, he is not restricted to investment grade but only 4% of his portfolio currently is made up of non-rated bonds. The fund currently is yielding around 4.5% per annum.
We have had a fair bit of negative press recently particularly with regards to ongoing problems in Argentina, and I wondered if this would adversely affect his fund and performance.
Mr Huntjens countered that as his fund is hard currency only, there was less risk than if he had only more risky, less liquid currencies to allocate to, although he conceded that rises in US interest rates would certainly have an impact on the fund.
Giving an example of the eurozone crisis and how it affects, in particular, emerging Europe credit, Huntjens demonstrated that there is minimal exposure of these EU banks to Asian hard currency debt, resulting in less impact on these markets whilst the banks continue to deleverage.
Looking ahead for the fund, Huntjens thinks that ongoing problems in EU and US will hamper equity markets and could favour Asian debt.
Whilst fundamentals continue to be strong, such as overall levels of debt and inflation seemingly under control, capital should flow into these markets and sectors and he does not expect a hard landing in China.
Author: Alan McGregor
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