When local currency bonds emerged five years ago as a legitimate, albeit small, subset of fixed-income investing in Asia, their appeal was predicated on offering solid risk-adjusted yield at a time when any yield was difficult to find. The very notion that there even is a local currency bond market speaks volumes at the progress many Asian nations have made in embracing the structural adjustments needed to move from bank financing to a capital markets approach.

Greenwich Associates Asia (ex Japan) Fixed-Income studies, which annually survey around 1,000 institutional investors in the region,  show that foreign holdings of Asian local currency bonds have grown from $150 billion in 2009 to well over $446 billion today. Trading volumes in local currency corporate bonds are growing at a higher rate than government bond volumes; in 2012, corporate bond volume increased by just over 20%, and now accounts for about one-third of the total local currency volume.

“That the investments in local currency bonds have continued to grow in both local and foreign investors’ portfolios is an indication of how Asia has managed to emerge from the post-2008 world in a way that portends well for its future,” says Amar Darira, head of credit sales for Asia-Pacific at HSBC. “A move towards global best practice in terms of protecting creditors’ rights, fostering a stable inflationary environment, and recognizing the need to replace unilateral financings that banks are no longer able to carry on their books have all contributed to the continuing popularity of the asset class.”

Analyzing the Markets The new report from Greenwich Associates and HSBC, entitled, Opportunities and Challenges in Asian Local Currency Fixed Income, examines the current environment for investing in local currency markets and the best practices that investors will want to consider. What is important to note is that just as Asia is a collection of countries all at different stages of economic development, the local currency bond markets in each country have their own unique rules and regulations. To help readers understand and navigate these markets, the report provides detailed breakdowns of the local currency bond markets in China, South Korea, India, Indonesia, Malaysia, Thailand, and Vietnam.

“On one hand, foreign investors are looking to capitalize on the growth prospects in Asia, while at the same time investors are wary about liquidity risk and their ability to anticipate local market developments,” says Abhi Shroff, consultant at Greenwich Associates in Singapore. “It becomes critical for investors to have strong on-the-ground presence in this region, or to work with firms that do.”

FuturesMag

The moves came as Hong Kong and South Korean markets were closed for holidays, reportedly curbing trading volumes in bourses that were open.

Japan’s Nikkei Stock Average moved off opening lows but still traded with a 0.2% loss in early morning action, adding to Thursday’s 0.4% retreat, which had followed a major jump of 2.3% on Wednesday.

Outside of the very largest firms, however, Japanese equities managed to pull higher, with the Topix — which includes all large-cap shares listed in Tokyo — rose 0.2%

Losses for Wall Street overnight helped dampen sentiment, with the S&P 500 (SPX) down 0.5% after a Federal Reserve official tipped a pullback in the central bank’s easing programs could come as soon as this summer.

Tech-sector blue chips were among the leading decliners, with Advantest Corp. (ATE) down 1%, Pioneer Corp. (6773.TO) tumbling 3.4%, and Tokyo Electron Ltd. (8035.TO) shooting 3.2% lower, back to levels seen at the start of the week.

Sony Corp. (SNE) dropped 1.4% after NPD Group data late Thursday showed April U.S. videogame-console sales plunging 42% from year-earlier levels as consumers awaited new devices from Sony and rivals Microsoft Corp. (MSFT) and Nintendo Co. (NTDOF). Shares of Nintendo traded 1.5% lower.

Other significant losses for blue-chip issues included a 2.2% drop for Asahi Group Holdings Ltd. (ASBRY), a 4% loss for J. Front Retailing Co. , and a 2.7% fall for recently volatile shares of Sharp Corp. (SHCAF).

Among the advancers, Hitachi Ltd. (HIT) rose 1.1% after the conglomerate forecast earnings for the 2015-16 fiscal year that bested analyst expectations.

Sydney, Shanghai nose higher

Over in Australia, the benchmark S&P/ASX 200 clicked 0.2% higher, helped by strength in some major mining and banking names.

Senior miners BHP Billiton Ltd. (BHP) and Rio Tinto Ltd. (RIO) added 2% and 0.3%, respectively, after a 0.9% advance for July copper futures overnight. Uranium extractor Paladin Energy Ltd. (PDN.T) rose 3.3%, while Fortescue Metals Group Ltd. (FSUMY) added 1.9%, though losses for gold futures helped drive Newcrest Mining Ltd. (NCMGF) shares 2.4% lower.

“If commodity prices remain supported in the Asian trading session, Australian stocks should hold near current levels and halt recent weaknesses,” wrote Rivkin global analyst Tim Radford just ahead of the market open. The ASX 200 had ended Thursday with a 0.5% loss, after falling 0.6% on Wednesday.

Among financials, Commonwealth Bank of Australia (CBAUY) — the ASX 200′s most heavily weighted component — gained 0.6%, while Australia & New Zealand Banking Group (ANEWF) improved by 1.4% and insurer QBE Insurance Group Ltd. (QBIEY) rose 1.8%.

Shares of Virgin Australia Holdings Ltd. (VBHLF) jumped 8.4% higher after 17% crash in the previous session on the back of a profit warning. Helping boost the airline operator, both UBS and J.P. Morgan raised their ratings on the shares to buy and overweight, respectively.

However, a profit warning at energy firm WorleyParsons Ltd. (WOR.AU) sent that stock falling 10.6% in Sydney.

Likewise, retail major Wesfarmers Ltd. (WFAFY) warned of “disappointing” results at its Target stores, with its shares losing 3.1%. Target Australia is unrelated to the U.S. firm Target Corp., though it uses the latter’s “bullseye” logo.

Over in Shanghai, shares saw rangebound trade, with the Shanghai Composite Index trading 0.2% higher after opening 0.2% to the downside.

Strength in the property majors helped support the market, with Poly Real Estate Group Co. adding 2.2% and Gemdale Corp. up 2.8%. Similarly, top mainland Chinese developer China Vanke Co. saw its shares gain 2% on the Shenzhen Stock Exchange.

The advance for real-estate came ahead of April home-price data, due out Saturday. Noting March’s 3.6% gain in home prices for the 70 top cities surveyed in the data, ING analysts said: “We think increased monetary accommodation in the beginning of the year … kept home price inflation elevated.”

Also positive for the sector, some investors are expecting the Chinese government to loosen some of its restrictions on property sales by the end of the year, Dow Jones Newswires quoted a Guotai Junan Securities as saying.

Dow Jones Newswires

The moves come before an expected initial public offer by Alibaba, which analysts say could value the group at between $60 billion and $100 billion, prompting comparisons with Facebook’s blockbuster IPO.

“Now is the time to be aggressive on some of these deals because it’s a lot easier when they’re private than it’s going to be when they list,” said Bill Bishop, a columnist for The New York Times’s DealBook.
Alibaba and Nasdaq-listed AutoNavi would form a strategic alliance to develop “location based” e-commerce opportunities as part of the deal, according to a joint statement on AutoNavi’s website.

“This new alliance reflects our vision for the future of the mobile Internet,” Alibaba founder Jack Ma, who on Friday stepped down as the group’s chief executive officer to become chairman, said in the statement.
Alibaba operates China’s most popular e-shopping platform, Taobao, which has more than 90 percent of the online market for consumer-to-consumer transactions in the country. Taobao has more than 800 million product listings and over 500 million users.

Alibaba aims to expand beyond its home market by targeting overseas Chinese through Taobao, an executive told a news conference Friday at the company’s headquarters in Hangzhou city.
“We hope to provide services to markets of overseas Chinese consumers first so we can have the experience and ability to further promote Taobao in other markets of non-Chinese consumers,” said Daphne Lee, director of overseas business for Taobao.

Such a move could eventually make Taobao, which marks its 10th anniversary Friday, a threat to US giants eBay and Amazon.
Lee said Taobao, which launched its overseas business last year, is still only present in four places outside mainland China: Hong Kong, Taiwan, Singapore and Malaysia.

But she dismissed the possibility of a near-term launch for an English interface which would make Taobao more accessible to foreign users.
“Overseas business is just like a newborn baby compared with the 10-year development of Taobao,” Lee said.
Phys.org

Toyota’s market capitalization stood at 22.23 trillion yen ($217 billion) on Thursday, beating out the Galaxy smartphone and tablet computer giant which was worth the equivalent of 20.32 trillion yen.

Toyota, also the world’s biggest automaker, has seen its shares jump on the back of improving financial results. The Corolla and Camry maker said last week its full-year net profit more than tripled.

Samsung overtook the Japanese giant in the market value table in 2011, according to the leading Nikkei business daily, as the South Korean conglomerate notched up huge profits in its global battle with U.S. rival Apple.

Toyota’s Tokyo-listed shares finished at 6,450 yen, more than double their 3,165 yen closing price a year earlier.

Samsung shares closed at 1.508 million won (US$1,350) on Thursday.

Copyright Agence France-Presse, 2013

Thursday’s Cabinet office data showed, however, that corporate investment has yet to follow to ensure a sustained economic upturn.

Gross domestic product (GDP) rose 0.9 percent from the previous quarter, against the median forecast of 0.7 percent expansion in a Reuters poll of analysts. The growth translated into an annualised 3.5 percent, compared with 2.5 percent for the United States in the same quarter.

The data — which covers the first full quarter since Abe’s return to power in late December — is viewed as the first comprehensive report card on his plan to revive the world’s third-largest economy. Solid readings will help Abe keep high support until the upper house poll in July.

The first quarter gain mainly reflects the psychological effects of improved expectations behind rising domestic demand. Analysts expect the pick up in domestic demand and export income that Abe is hoping to jolt the economy out of its two-decades of stagnation will materialise ahead.

“Personal consumption was really strong and exports did better than expected. Stock gains and expectations for higher salaries are driving consumption now,” said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo.

Private consumption, which accounts for roughly 60 percent of the economy, rose 0.9 percent as expected and was up for a second consecutive quarter, reflecting the better consumer mood helped in part by a buoyant stock market.

Exports, helped by the yen’s retreat to 4-1/2-year lows against the dollar, beat expectations, making a 0.4 percent net contribution to GDP, despite higher import costs caused by a weaker currency.

Capital spending disappointed, however, falling 0.7 percent in the quarter, defying expectations of a 0.7 percent increase, in a sign that despite improved business sentiment Japanese companies remain cautious and hesitant to boost investment.

Consumer spending could suffer from rising costs of energy and imported goods unless the summer round of bonuses boosts incomes enough to make up for a squeeze in disposable incomes.

Abe has yet to deliver pro-growth reforms promised as part of his three-pronged strategy. But extra stimulus spending and the Bank of Japan’s plan to double its government debt holdings have lifted consumer and business mood, sending the yen sharply lower and boosting share prices by 70 percent since November when Abe first presented his economic plans.

Even though it is far from clear whether “Abenomics” will bring back sustained solid growth that has eluded Japan for the past two decades, analysts expect the economy to maintain momentum in the current quarter, helped by public investment, a weak yen and recovery in the U.S.

“The economy will enjoy strong growth for another year or so. It’s no longer just about brightening sentiment and rises in equities prices. There’s now proof that Abenomics is working and that the economy is on a solid footing,” said Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute in Tokyo.

Deliveries to Singapore in June will cost an average $1.25 a metric ton more than July contracts in the second half of this month, according to the median estimate of five traders surveyed by Bloomberg this week. The difference was $4.50 on May 1, the most since September 2012, and averaged $2.36 in the first half of the month.

The fading premium shows how Europe’s recession and China’s economic slowdown is hurting the market for a commodity used to power the ships that carry 90 percent of the world’s traded goods. Europe’s exports to Asia are poised to rise to the highest in four months as it struggles to emerge from a recession that’s sapping local demand. At the same time, Chinese refineries that use the fuel to make more valuable gasoline and diesel are cutting purchases as growth slows.

“It doesn’t get more attractive from here,” Miswin Mahesh, a London-based oil analyst at Barclays Plc, said by phone on May 10. “Any time there is a spike in fuel oil, we continue to say fade the rally.”

The swap for 180-centistoke fuel oil for earliest delivery cost $609.75 a ton today, bringing its decline this year to 0.8 percent, according to data from PVM Oil Associates Ltd., a London-based broker. The contract for the fuel in two months cost $608.25, down 1.7 percent this year.

Traders’ Outlook

Four traders surveyed by Bloomberg forecast the premium between the first- and second-month contracts will range from parity to $1.50 in the second half of May. One predicted it would widen to about $7, citing a shortage of the material needed to blend with it to make shipping fuel, or bunker. It was at $1.50 a ton at 2:29 p.m. in Singapore.

Deliveries from Western countries to Asia this month may rise to 4.4 million tons, up from 3.5 million in April, according to data compiled by Bloomberg. That’s the most since January. Shipments from Europe increased to 2.5 million tons, or 57 percent of the total, compared with 1.3 million, or 38 percent in April.

The euro-area economy shrank 0.2 percent in the three months ended March, extending the region’s recession to a record sixth quarter. That followed a 0.6 percent decline in the previous three months, the European Union’s statistics office in Luxembourg said May 15. Brent crude, the North Sea benchmark for more than half of the world’s oil, fell about 6 percent this year, to trade at about $105 today, on concern Europe’s fuel demand will drop.

Oil consumption in European countries that are members of the Organization for Economic Cooperation and Development will fall 2.4 percent to 13.4 million barrels a day this year, according data from the International Energy Agency in Paris.

China’s Teapots

At the same time, fuel oil demand from refineries in eastern China known as teapots that import the oil to make motor fuel has been weakening as the country’s economic growth slows, according to C1 Energy, a Shanghai-based commodity researcher.

“Chinese teapots are not buying at the moment because they need to destock both fuel oil as feedstock and diesel as products amid low run rates,” Sophia Ma, a Guangzhou-based oil analyst at C1 Energy, said by phone. “We are not too optimistic about the outlook.”

Growth in China, the world’s second-largest economy, slowed to 7.7 percent in the first quarter, down from 7.9 percent in the previous three months. That drove its stockpiles of diesel, which fuels trucks and machineries, to the highest in almost a year in February and March, according to data released by Xinhua News Agency’s China Oil, Gas and Petrochemicals newsletter.

China’s teapot refineries cut operating rates to 24 percent on April 18, the lowest in at least three years, according to Oilchem.net, an industry website. The run rate rose to 29.1 percent as of May 2.

Shipping Fuel

Shipping fuel sales in Singapore, the world’s largest vessel-refueling port, fell 1.6 percent to 13.9 million tons in the first four months compared with a year earlier, data from the city-state’s maritime authority show. April sales rose to 3.6 million tons from 3.4 million in March.

Demand from ship owners is falling this month because purchases in April covered their needs, according to Oliver Imaizumi, a senior manager at Petro Summit Pte in Singapore.

“Demand right now is stable, but not that much compared to last month,” Imaizumi said by telephone from Singapore, “Ship owners took the bunker in April so they don’t really need to top up volume in May.”

Singapore Stockpiles

Singapore prices for 380-centistoke fuel oil, the grade used for bunker, fell to $596 a ton on May 15, the lowest in more than five months, according to data compiled by Bloomberg. The price has slid 10 percent from the high of $663.50 in February. It averaged $626.53 this year.

Residual-fuel inventories in Singapore rose for a third week to the highest level in more than five months, according to a unit of the Ministry of Trade and Industry.

Inventories including fuel oil and low-sulfur waxy residue and excluding bitumen gained 2.63 million barrels, or 13 percent, to 22.3 million in the seven days to May 15, International Enterprise Singapore said in an e-mailed statement. That’s the highest since the week ended Dec. 5.

“The market has been strong mainly because of lack of blending stocks,” said Jit Yang Lim, a Singapore-based analyst with KBC Energy Economics. “With a lot of shipments coming in with all the quality fuel oil, that should ease the cracks in the coming month.”

Bloomberg

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