Aberdeen fund prefers other emerging markets to here

Aberdeen Emerging Opportunities Fund, however, sees an opportunity to reap high returns from fixed-income investments in other emerging markets such as Peru and Brazil, where markets have fully priced in interest-rate increases.

Kevin Daily, portfolio manager for the fixed-income emerging market, said the company retained its weight of 1 per cent in the Thai bond market, as the yield is not yet attractive.

Bond yields in many emerging-market countries are high, such as 21 per cent in Turkey, 15 per cent in Brazil and 12 per cent in Indonesia, but that of Thailand is only 5.1 to 5.2 per cent.

He wanted to see a stronger policy response to inflation, as has happened in other countries such as Indonesia. This would restore investors' confidence because it would prove that the Bank of Thailand had a concrete stance to tackle the problem of inflation.

"The BOT takes steps that are too slow when raising interest rates, as the market has already priced in about 75 to 125 basis points," said Pongtharin Sapayanon, the company's portfolio manager for Thai fixed income.

He forecast that the central bank would raise the key rate by 25 basis points in today's meeting with the estimated target of 4 per cent at the end of the year. But he said the BOT should lift the rate by half a percentage point to prove its stance was serious.

"The market would not react to a 25-percentage-point increase, but a 50-basis point rise could result in a shift of the yield curve because it would build up expectations that the central bank may not raise the rate in the next meeting," he said.

With global inflation and volatility high, the fund has differentiated its investment strategy in each emerging country, depending on various factors such as the macroeconomic picture, the political situation and policy management, said Daily.

Kate Hathirat, head of fixed-income (Thailand), said the fund was slightly affected by the phenomenon of high inflation throughout the world because 65 to 70 per cent of the portfolio is in dollar-term bonds, which are only slightly affected by low US inflation.

The firm has changed investment strategy from long-term bonds to short-term treasury bills to reduce the inflationary impact, she said.

Meanwhile, according to the 19 economists surveyed by Bloomberg News, Thailand's central bank will today raise the benchmark interest rate for the first time in two years. The Philippines will follow suit, all 20 of the economists in a separate survey said.

"Asian central banks are shifting towards a more hawkish bias," said Vishnu Varathan, an economist at Forecast Singapore. Those deemed not to be tackling inflation risk losing investor confidence, he said. "We can expect higher interest rates in the weeks and months ahead."