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NEWS UPDATES Asean Affairs        27  April 2011

Pimco bullish on Asia

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The Pimco Total Return Bond Fund, the world's largest fixed-income fund, is bullish on emerging and Asian markets, as it believes US asset classes and its currency will depreciate this year.

Despite a gradually improving US economy and market anticipation that the Federal Reserve does not intend to introduce a new stimulus programme, the country will need to provide more liquidity to stimulate economic growth, said Brian Baker, head of Asia ex-Japan and chief executive officer and director of Pimco Asia Ltd.

He believes the US government will introduce Treasury bonds with longer maturities to achieve part of that goal.

He also forecast the Fed would lift its ultra-low interest rate to attract investors instead of launching a third round of quantitative easing. The current programme involves the purchase of US$600 billion in US Treasuries and is scheduled to finish in June.

It is likely that the US dollar will depreciate and returns on US government bonds will be lower than those of emerging and Asian markets, he said.

Recently, Pimco revised its investment policy to put 10 percent more weight in Asian assets and 10% more into emerging markets, though the fund's key investments still remain in US assets and the dollar.

"Asia and emerging economies should continue to grow rapidly and close the wealth and income gaps with the developed world," said Mr Baker.

However, he said Asia would face inflation risk caused by rising food and oil prices, making Asian governments likely to subsidise fuel prices and raise interest rates to cope. "As these economies expand, fund inflows will enter the region. The currencies of Asian and emerging countries are likely to appreciate."

The expected return of the Pimco Total Return Bond Fund for this year is around 4-5 percent, while the combined returns for the past three years stood at 20.99 percent.

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