Local currency bond funds favoured by Asia-Pacific investors

Asian_currenciesBond funds domiciled in the Asia-Pacific region and denominated in Asia-Pacific currencies gained net inflows of $5.6 billion (€4.3 billion) in 2011, according to research firm Cerulli.

But bond funds domiciled in the region and denominated in dollars, euros and other world currencies suffered redemptions of $16 billion.

The report suggests the growth was driven by the most developed regional markets, Japan and Australia, rather than the emerging economic powers such as China and India.

Five of the top ten Asia-Pacific bond funds by net new flows were funds denominated in the Australian dollar. These were particularly popular among Japanese investors, who ploughed $11.6 billion of net new money into the funds during 2011. The Japanese yen has declined about 10% against the Australian dollar since January this year.

Elsewhere, Asia-Pacific currency bond funds gained inflows from their home markets. Bond funds denominated in Japanese yen gained $2.3 billion in Japan, while bond funds denominated in Malaysian ringgit gained $1.2 billion in Malaysia.

There was great initial interest in bond funds denominated in the Chinese renminbi during 2011, but inflows were inconsistent. Cerulli said 14 funds were launched in the second quarter and inflows hit $2.3 billion in June, but in the rest of the year, these funds saw net outflows or meagre inflows.

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