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Local Asian bond markets - The credit picking gets harder

Last year bond investors only had to pick the right country to make profits in Asia. This year the focus is on individual credits, and there are plenty to choose from. Investors need to do their homework. Governments and corporates are issuing fast and furiously. Corporates want an alternative to bank lending, over-reliance on which, they say, caused some of their past troubles. Governments are issuing even when they don't need the money, to create a domestic market and build up a curve. Pauline Loong reports on Hong Kong, Singapore, the Philippines and Indonesia, Dominic Jones on Korea and Taiwan, Gill Baker on Thailand and Malaysia.

The Asian economies are making a rapid recovery. The financial markets are bouncing back and the bond markets enjoyed a boom year. But the prospects for 2000 are varied. Market players say that while total fee earnings are likely to be up with increased issuance - US investment bank JP Morgan expects gross government bond supply in the region to rise 20% to $135 billion this year - performance is likely to slip. This means the job of buying or selling bonds will be that much tougher.

"We do not look for another year of outsize performance numbers," says David Rolley, emerging-market debt strategist for Boston-based fund managers Loomis Sayles, which has $65 billion in funds under management. He points to the good performance by Asian bonds as an asset class in 1999. He cites the huge rally by Korean government long-term debt, which was about 450 basis points over US treasuries at the beginning of last year. By the end of the year, it was about 150bp over US treasuries. And that kind of performance appears, he says, not just in Korean securities but right through the region.

"Most bonds in Asia have done very well.

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