Investors got a sign, last week that the strong bond market run in New Zealand and Australia may be coming to an end.
Australian-based fund manager EquitiLink announced it has secured approval to shift $1.87 billion from Australasian bond markets into Asia.
The money is currently part of two listed North American bond funds, one of which until now had invested exclusively into Australian and New Zealand bonds.
"Yields are very low in Australia at present, although more attractive in New Zealand" EquitiLink investment director Michael Clarke says.
"Asia, however, is now offering yields of between 10 and 20 percent. Sovereign and corporate bond issues in Asia are beginning to provide very attractive returns."
US and Canadian shareholders approved moving up to 35 percent of the respective portfolios of the Prime Income Fund (US) and the Prime Income Fund (Canada) out of Australia and New Zealand into select, high quality Asian debt securities.
"This is not something we will be doing all at once," Clarke says. "But as the economies of various Asian countries stabilise, EquitiLink will be progressively buying high quality debt at yields two to three times what are currently on offer in Australia and New Zealand. Investors will achieve significant benefits as a result."
EquitiLink's New Zealand general manager Richard Flinn says the move indicates a shift in offshore institutional investor sentiment away from Australia and New Zealand into Asia.
Both New Zealand and Australian bond markets have performed extremely well for US investors over the past eight years. Now, however, due to the Asian crisis, new investment opportunities in that region are opening up, even as returns on Australian and New Zealand fixed interest slow down, he says.
Flinn believes that New Zealand institutional investors will eventually follow their US counterparts and will progressively place parts of their debt allocation into Asia.
"Provided this is done in a highly professional and well-researched manner, the rewards will far outweigh the risks," he says.
Investors got a sign, last week that the strong bond market run in New Zealand and Australia may be coming to an end.