State-owned insurance company Jamsostek last year merged with other agencies to form the Social Security Organizing Body, or BPJS. (JG Photo/ Dhana Kencana)

Bonds Shunned Just When Needed Most


MARCH 24, 2015

 State-owned insurance company Jamsostek last year merged with other agencies to form the Social Security Organizing Body, or BPJS. (JG Photo/ Dhana Kencana)

The biggest state pension funds in Thailand and the Philippines are shifting money from bonds to stocks, which could push up the cost of government stimulus programs.

The Social Security Office and Government Service Insurance System said they’re increasing holdings of shares, while the head of Indonesia’s BPJS Ketenagakerjaan said he sees the nation’s stock index rising 14 percent by year-end.

Rupiah, baht and peso notes have lost money since the end of January, after handing investors respective returns of 13 percent, 9.9 percent and 6.6 percent last year, Bloomberg indexes show.

“There has been frustration among domestic institutional investors about the falling returns on bonds,” Win Phromphaet, who manages 1.2 trillion baht ($37 billion) as Social Security Office’s head of investment in Bangkok, said in an interview on Thursday.

“Large investors including SSO must quickly expand our investments in other riskier assets.”

Appetite for sovereign debt is cooling just as Southeast Asian governments speed up construction plans in response to slowing growth in China and stuttering recoveries in Europe and Japan.

President Joko Widodo has added Rp 100 trillion ($7.7 billion) of spending on projects including ports and power plants in to country’s 2015 budget, Thailand’s military rulers are accelerating outlays on rail and roads and Philippine President Benigno Aquino is relying on new infrastructure to increase growth to 8 percent in his last two years in office.

Pension fund assets across the Asia Pacific are forecast to increase 9.5 percent annually to reach $6.5 trillion by 2020 from $3.2 trillion in 2012, according to a PricewaterhouseCoopers report in February last year.

Aging populations in Japan and Singapore are forcing those countries’ pension funds to chase higher returns.

Japanese public funds bought an unprecedented 2.39 trillion yen ($20 billion) of foreign stocks and bonds in the fourth quarter, while selling 5.56 trillion yen of domestic sovereign debt, Bank of Japan data show.

GIC, the city-state’s sovereign wealth fund, has been increasingly taking stakes in foreign real estate including New York’s Time Warner Center.

Baht-denominated sovereign securities fell 0.2 percent since end-January following seven months of gains.

After rallying 6 percent in the first two months of the year, the SET Index has dropped 5.3 percent so far in March.

Earnings of companies in the stock gauge will climb 38 percent in the next 12 months, compared with 5.7 percent for the MSCI Emerging Markets Index, data compiled by Bloomberg show.

“Thai stocks have fallen into very attractive valuations,” the SSO’s Win said.

“There will probably be another rally” driven by local investors, he said.

Rupiah sovereign notes have lost 0.7 percent since end-January as foreign funds pulled Rp 1.47 trillion from the debt and the currency weakened 2.3 percent.

Elvyn Masassya, president director of BPJS Ketenagakerjaan, which has Rp 193 trillion of assets, is optimistic new infrastructure spending and President Joko’s efforts to woo investment will drive further gains in the Jakarta Composite Index.

The share gauge is up 4.3 percent to 5,453.171 in 2015.

“We remain confident that stocks can reach 6,200 by the end of the year,” he said in a March 19 interview in Jakarta.

Government bonds will rally if the central bank cuts interest rates again, he said.

Malaysia is the only one of Southeast Asia’s main emerging markets to see its ringgit-denominated sovereign notes gain since end-January with the debt advancing 2.2 percent. The nation’s benchmark share index rose 1.4 percent over the period.

Wan Kamaruzaman Wan Ahmad, the Kuala Lumpur-based chief executive of Kumpulan Wang Persaraan, Malaysia’s second-biggest pension fund, said he was “generally optimistic” about the nation’s bonds and stocks even though the weak ringgit and falling oil prices are concerns.

The currency has lost 4.7 percent against the dollar this year and a 51 percent drop in Brent crude since June has harmed revenue in Southeast Asia’s only major net oil exporter.

“Apart from the US, there is hardly any reason to expect Europe and Japan to even consider doing anything on interest rates apart from maintaining an ultra-accommodative policy,” Wan Kamaruzaman said in an e-mail on Friday.

“Such a loose monetary-policy environment is supportive for the local bond market.”

Peso sovereign paper has fallen 1.8 percent since the end of January, while the country’s benchmark stock index is up 1.5 percent over the period and 7.9 percent this year amid optimism falling oil prices will boost consumer spending The Government Service Insurance System, which has about 860 billion pesos ($19 billion) of investible funds, plans to ask its board to raise the cap on equities to 30 percent of assets from 20 percent, president Robert Vergara said.

Stocks account for about 18.5 percent of investments, he said.

“Bonds right now are just digging a big hole for me,” Vergara said in a March 11 interview in Manila.

“As we approach the 20 percent threshold, we want to ask for an increase in the weighting that we can have in equities.”