Pacific Investment Management Co. is bullish on Asia while Bill Gross, who runs the world’s biggest bond fund at the company, bets against U.S. Treasurys.
Singapore’s dollar should strengthen as central banks in the region use currency appreciation to fight inflation, according to a report by Chia Liang Lian, a portfolio manager for Pimco. The South Korean won and Chinese yuan are “undervalued,” the report said.
“The resilience of emerging Asian countries leads us to be open to adding exposure as attractive opportunities arise,” Singapore-based Lian wrote in the report on the company’s website.
Gross, who manages the record $236 billion Total Return Fund, set a bet against U.S. government and related debt in March, after reducing the position to zero in February, the Newport Beach, California-based company said on its website earlier this month. South Korean and India quasi-sovereign bonds are attractive and Indonesia may achieve investment grade within a year, Lian wrote in his report.
Singapore’s dollar strengthened to a record S$1.2421 against the U.S. currency today after the city-state’s central bank said April 14 that it would allow further appreciation to combat inflation. The Korean won has risen 3.3 percent in the past month and the Chinese yuan advanced 0.6 percent.
“The gradual appreciation trend in the Singapore dollar should remain intact,” Lian wrote. “Despite recent gains, we believe the South Korean won and Chinese yuan remain fundamentally undervalued.”
Pimco is also seeking opportunities to buy credit-default swaps, according to the report.
“We look to add, during periods of generalized market weakness, exposure to high quality sovereigns with strong credit metrics,” Lian wrote.
Traders use credit-default swaps to speculate on credit quality. A drop in price signals improved perceptions of creditworthiness, while an increase suggests the opposite. The contracts pay the buyer if a borrower fails to meet its debt agreements.
Pimco’s Emerging Asia Bond Fund, which Lian manages, has returned 6.5 percent this year, according to data compiled by Bloomberg. The performance beat 97 percent of the fund’s competitors, the figures show.
Gross’s Total Return Fund handed investors a 2.1 percent gain in 2011, outperforming 80 percent of its peers, Bloomberg data show.
The fund holds no Treasurys, Mohamed A. El-Erian, the company’s chief executive officer, said on CNBC on April 14. The securities may lose value because of the threats of inflation and currency devaluation, Gross wrote in his April investment outlook.
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