ING predicts end of "dream run" for Asian U.S. dollar-denominated bonds

St. Louis, Dec. 3 - ING Financial Markets predicts that the market for Asian U.S. dollar-denominated bonds will likely see returns of only 4% in 2004 due to falling U.S. Treasuries, limited value in credit spreads and competition from other asset classes, effectively ending the run that the market had enjoyed since 1999.

However, in a report issued Wednesday titled "The Dream Run Ends," ING stated that with adept bond selection and targeted investing in certain select issues, investors could generate returns up to 15%.

"Adept bond selection is going to be critical in a region that will experience several parliamentary election and key presidential elections", said Damien Wood, ING's Head of Credit Research for Asia, in a news release.

He noted that parliamentary elections are due to be held in Hong Kong, Indonesia, Malaysia and the Philippines notes. Presidential or leadership elections are due to be held in Korea and Thailand.

"Asian US$ bond markets have found strong support in recent years from the vast surplus cash that resides in the Asian banking system, the so-called Asian Bid. But, with increasing competition from other asset classes and as banks start to expand their lending activity, they will be less keen to deploy excess liquidity to the U.S. dollar-denominated bond market," Wood added.

ING also predicted that Hong Kong is likely to see a dearth of corporate bond issuance in 2004 despite the current upswing in the economic environment and the improvement in sentiment towards Hong Kong credits.

The Republic of the Philippines' long-dated issues are forecast to return more than 15% after the current political uncertainty falls away following the elections. ING cautions however that these bonds are for investors able to withstand bouts of short-term price weakness and nimble enough to move should the situation deteriorate.

Philippine Long Distance Telephone's bonds maturing in 2007, 2012 and 2017 are ING's top picks in the telecommunications sector, due to their attractive total returns, particularly given the expectation that the Philippines' sovereign credit curve will flatten over the coming year.

Aneka Tambang boasts key credit strength and will benefit from Indonesia's expected upgrade, the report added. It also offers higher credit returns than peers such as Freeport-McMoRan and ING forecasts an 8.7% return over 12 months on the issue.

ING also recommends AES China as likely to become Asia's most attractive utility bond. The firm estimates 12 month total returns of 8% and expects the bonds will continue to experience good trading liquidity and benefit from an improving stand-alone credit profile.

Equitable-PCI's improving results will benefit its credit profile, ING said, adding that it expects profit growth at the bank to continue, which should increase demand for the bonds and tighten its credit spread to the sovereign. ING forecasts a 12 month total return of 13%.

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