Higher U.S. rates to weigh on emerging assets, fund says
Fund looking at Japanese, European equities for next year
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Thailand’s Government Pension Fund plans to increase investments in developed-nation equities next year as higher U.S. interest rates weigh on emerging-market assets.
The fund, which manages about 708 billion baht ($19.8 billion) in retirement funds for more than 1 million state employees, will consider buying equities in Japan and Europe, Yingyong Nilasena, its chief investment officer, said in a interview from Bangkok. The fund may also acquire real estate in Europe and Asia, he said.
Futures indicate the federal funds rate will reach about 0.80 percent by December 2016, while the most recent estimates from Fed officials in September show they expect to raise rates by about 1 percentage point next year. The pension fund’s overseas thrust comes as a retreat in Thai stocks and government bond yields dragged down its returns to 3.59 percent in the first 10 months of the year from 6.75 percent in 2014.
“It will be a tougher year ahead as the expected rise in U.S. interest rates will increase all financial assets’ volatility,” Yingyong said. “Developed-market equities will have a better outlook than those of emerging markets on concerns about fund outflows and slowing growth.”
The MSCI Emerging Markets Index has dropped 12 percent this year, compared with a 0.6 percent loss by a gauge of developed stocks. Thailand’s SET Index has fallen 6.9 percent, while the yield on the government’s five-year bonds dropped to 2.27 percent on Friday from 2.48 percent at the end of 2014, according to Thai Bond Market Association’s data compiled by Bloomberg.
The fund received government approval earlier this month to increase overseas exposure to 30 percent of assets, up from the previous limit of 25 percent. It currently invests about 60 percent of its assets in domestic bonds, most of which are the government’s securities, according to Yingyong. About 23 percent of its funds are in international and local equities, while the rest are in international bonds, foreign real estate, private equity and infrastructure, he said.