ING predicts double-digit returns for Asian bonds in second half

By Reshmi Basu

New York, July 6 - Investors are urged to add more Asian risk in an ING report titled "Profit in the Second Half of 2005 from First Half Surprises."

Investors can expect to see double-digit returns and profits, touched off by a series of unexpected events in the Asian bond market during the first six months of this year.

Such surprises include the lukewarm performance of the region's GDP growth, the strength of the U.S. dollar and the political turmoil in the Philippines.

The growth slowdown has contributed to a slower pace of new bond issues. ING predicts that volume will be down as much as $6 billion year-on-year in the second half to $12 billion.

Also, the strength of the dollar reflects a shift in foreign buying to U.S. corporate securities from U.S. Treasuries. Producers tend to raise the price of their goods to compensate for the loss of purchasing power when the dollar depreciates.

"The flip side of this is the underperformance of Asian commodity-linked bond issues since the U.S. dollar began strengthening this year," said ING, adding that the underperformance is expected to continue.

And the third surprise is the political turmoil in the Philippines. Much of the bad news has been priced in as ING predicts a peaceful resolution to the current political story.

ING is maintaining its buy recommendation on the country's sovereign debt.

Meanwhile ING is recommending bonds from the banking sector such as lower tier II subordinated bonds issued by Indonesia's Bank Danamon and Bank Mandiri.

Elsewhere in the banking industry, the Philippines' Equitable PCI is expected to see above average returns following recent operating gains and declining non-performing assets.

For telecommunications' credits, ING said that there is value in second and third tier operators, and forecasts above-average one-year returns for City Telecom's bond due 2015, PT Global Telekomunikasi's Mitra bond due 2010, Hanaro Telecom's bond due 2012 and Excelcomindo's bond due 2009.

In the corporate sector, ING noted that Hong Kong and the Philippines are the only two countries to have seen issuance levels increase year-to-date.

"In Hong Kong, corporates have again outperformed their peers and ING's recommendation includes the medium to long end of the Hutchison Whampoa curve due to attractive valuations for low A rated risk," said the report.

And lastly, ING said that while the utility sector remains a safe haven for investors amid the pressures resulting from Federal Reserve chairman Alan Greenspan's comments on the "conundrum" of low bond yields and credit downgrades for both General Motors Corp. and Ford Motor Co., "investors should now be looking to seek higher relative value in corporate and telecommunication bonds."

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