THAILAND

Asia will continue to offer favourable opportunities for bond investors, thanks to steady economic growth, appreciating currencies and rising interest rates, according to top bond investor Michael Hasenstab.

Mr Hasenstab, the co-director of fixed income for Franklin Templeton Investments, said slowing economic growth in the US and Europe would lead Asian currencies to appreciate over the next few years.

The prospects of currency gains, higher interest rate yields and lower risk thanks to relatively healthier public and private finances would help boost Asian bonds over the next few years.

Mr Hasenstab, who also manages the Templeton Global Bond Fund, told investors at a briefing yesterday in Bangkok that the Asian economic crisis of the 1990s resulted in countries and companies across the region reducing their debt levels and solidifying their finances.

While the 2008 global crisis affected economies across the world, emerging markets in the region have come out of the crisis relatively unaffected, with domestic consumption helping to offset export declines.

Mr Hasenstab said one issue that needs to be monitored is whether capital inflows into emerging markets could touch off an asset price bubble, particularly if these countries maintain lax monetary policies for too long.

Many countries across the region have already begun to scale back monetary stimulus adopted during the crisis and have raised rates to curb possible inflationary pressures and overheating.

The Bank of Thailand is widely expected to raise its one-day policy rate by a quarter of a percentage point when it meets today, a move that would follow a quarter-point hike in mid-July and push the policy rate to 1.75%.

Economic growth was 9.1% in the second quarter from the year before, and 10.6% overall for the first half of the year. The National Economic and Social Development Board on Monday more than doubled its full-year growth forecast for 2010 to 7% to 7.5%.

Mr Hasenstab said the European economies were expected to underperform for some time to come, although a liquidity crisis is unlikely given measures put in place by the European Central Bank.

Efforts to slow the overheating Chinese economy through credit curbs initiated since the third quarter of 2009 have also taken effect, he said.

"Chinese growth in the first half of the year was close to 12%, and the second half would be more like 8% or 9%. A lot of people in the market fear a hard landing. But I don't think this is a hard landing - it means that it's more sustainable," Mr Hasenstab said.

Worries about a new global downturn due to the European debt crisis or Chinese slowdown were likely overblown, and that investment opportunities remained in the bond markets.

"Particularly since there was a good deal of selling before this, where in some cases, there wasn't much differentiation between good and bad quality debt," he said.

Franklin Templeton's Global Bond Fund has generated yields of 16% for the past year. Thanachart Fund's T-Global Bond fund is a foreign investment feeder fund for the FTIF Templeton Global Bond Fund.

Tragoolchitr Jittasaiyapan, managing director and chief investment officer of Thanachart Asset Management, said Thai short-term interest rates are expected to rise to 2% by the end of the year and rise even further in 2011 as the economy continues to expand.

He said the Stock Exchange of Thailand index, up nearly 22% for the year to date, could reach 1,000 points on foreign inflows in the medium-term, representing a further 12.3% gain from current levels of 890 points.

In the Thai bond market, Mr Tragoolchitr said the short-term end of the yield curve was outperforming longer-dated instruments in light of the trend towards rising interest rates.

Thanachart Fund also sees the baht as ending 2010 at 31.50 to the US dollar but appreciating to near 30 in 2011.