Pacific Investment Management Co., which runs the world’s biggest actively-managed bond fund, is shifting to investment grade from high-yielding dollar assets in Asia, expecting a period of global uncertainty.
The possibility of the Federal Reserve surprising markets and a potential victory for Republican presidential nominee Donald Trump are among risks, Luke Spajic, the head of portfolio management for emerging Asia at Pimco, said last week. A “disorderly” devaluation of the Chinese yuan and sharp moves in crude oil prices can also hurt global markets, he said.
Most Asian currencies and sovereign bonds have declined this month as futures show there’s around a two-thirds chance the Fed will tighten by December. Adding to the selloff has been concern over a slowdown in China. Pimco said last week that the U.S. central bank may raise rates two or three times by the end of 2017.
“We are going into a period of uncertainty so we are raising cash equivalents,” said Singapore-based Spajic, whose firm oversees about $1.5 trillion in assets globally. While the money manager has trimmed its holdings in India, the nation, along with Indonesia is its “biggest overweight,” he said. “The assets which have done well recently, we are dialing them down. We are underweight Thailand and the Philippines.”
The money manager’s overweight position in Indian corporates and quasi-sovereigns contributed to the positive performance of the PIMCO GIS Emerging Asia Bond Fund in August, according to monthly commentary on its website. The fund also benefited from an overweight in Korean credits and a preference for Indonesian quasi-sovereigns over the sovereign.
The Bank of America Merrill Lynch Asian Dollar Investment Grade Index has delivered a total return of 8.5 percent this year, lagging the 13.7 percent handed by the BofA Merrill Lynch Asian Dollar High Yield Index.