Asian Debt Said To Be A Good Hedge Investment

Mary Swire, Tax-News.com, Hong Kong

30 March 2001

Antony Wood, a director of specialist fund firm Asia Debt Management, speaking on Tuesday at the Altinvest Taiwan alternative investment conference recommended distressed Asian debt as an effective hedge against current volatile conditions in the equity markets.

"These assets won't follow the rest of the market down and they won't react whether the US cuts interest rates by 50 basis points or 100, or if it raises them either," he said.

Mr Wood said distressed asset investing returned Asia Debt's Galleus fund about 15 per cent between April 1999 and January 2001, compared with a flat return on the Credit Suisse First Boston Global High Yield bond index and single-digit negative returns on the Morgan Stanley Capital International (MSCI) Far East Ex-Japan index.

Mr Wood estimated distressed corporate debt in Asia excluding Japan to have a face value of about $570bn, equivalent to about a quarter of a total stock market capitalisation of about $2,300bn, with particular exposures in China, South Korea, Indonesia, Thailand, the Philippines and Malaysia.

"If you're looking to invest money in a portfolio of Asian funds and you ignore distressed debt, you do so at your peril," Hong Kong-based Mr Wood said, adding that investors had to take a long-term view on their positions.

Asian regional stock markets lost an average of 32% last year amid fears about the slow pace of debt and corporate restructuring in the region and doubts about the sustainability of the US economic boom.

But, said Mr Wood, the risks are substantial, given the information blackout that tends to shroud most distressed debt situations. Distressed companies often delist or have their shares in long-term suspension on stock exchanges, leading investment analysts to stop producing equity research while any bond default halts third-party credit analysis, depriving potential investors of major sources of information.

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