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Christopher Wood christopher.wood@clsa.com +852 2600 8516<br />
Figure 6<br />
US 10-year Treasury bond yield (log scale)<br />
(%)<br />
16<br />
8<br />
4<br />
2<br />
1<br />
1980<br />
1981<br />
1982<br />
1983<br />
1984<br />
1985<br />
1986<br />
1987<br />
1988<br />
1989<br />
1990<br />
1991<br />
1992<br />
1993<br />
1994<br />
1995<br />
1996<br />
1997<br />
1998<br />
1999<br />
2000<br />
2001<br />
2002<br />
2003<br />
2004<br />
2005<br />
2006<br />
2007<br />
2008<br />
2009<br />
2010<br />
2011<br />
2012<br />
2013<br />
2014<br />
2015<br />
2016<br />
2017<br />
2018<br />
2019<br />
Source: CLSA, Bloomberg<br />
Figure 7<br />
Emerging markets non-financial US dollar-denominated corporate bonds by sector<br />
Technology<br />
3%<br />
Communications<br />
8%<br />
Consumer Staples<br />
4%<br />
Consumer<br />
Discretionary<br />
7%<br />
Health Care<br />
2%<br />
Energy<br />
34%<br />
Industrials<br />
10%<br />
Utilities<br />
14%<br />
Materials<br />
18%<br />
Source: CLSA, Bloomberg<br />
Even sovereign bonds in Asian economies vulnerable to rising oil price, such as India and Indonesia,<br />
look attractive to GREED & fear because of the high level of real interest rates. As discussed here last<br />
week (see GREED & fear - Modi revisited and “shadow banking”, 16 November 2018), monetary policy<br />
in India has been very tight in terms of the level of real interest rates. This is why 8% on the 10-year<br />
local currency government bond remains good value to GREED & fear, and it was at this level in early<br />
October before the recent rally (see Figure 8). It is also interesting that foreigners have started to<br />
buy Indian bonds again after selling for most of this year. Thus, foreigners sold a net US$9bn worth<br />
of Indian bonds in the year to 23 October, but have since bought a net US$1.4bn (see Figure 9).<br />
The same story applies in Indonesia where Bank Indonesia’s latest 25bp rate hike in the policy 7-day<br />
reverse repo rate to 6.0% last week (see Figure 10) is a reminder that monetary policy has been<br />
tightened to defend the currency in an economy which continues to grow well below potential.<br />
Indonesia real GDP growth slowed from 6.2% in 2010 to 4.9% in 2015 and was 5.2% YoY in the first<br />
three quarters of this year (see Figure 12). Meanwhile, the rupiah has appreciated by 4.5% since<br />
early October after depreciating by 11% since the start of 2018, while the rupee is up 4.2% since<br />
early October after depreciating by 13.9% (see Figures 8 & 11).<br />
Thursday, 22 November 2018 Page 4
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