Bloomberg News

Thai Pension Fund to Double Bond Investments After Equity Slump

June 29, 2011

June 30 (Bloomberg) -- Thailand’s Government Pension Fund, which manages about $16 billion of assets, plans to double its investments in overseas bonds after political tension ahead of the July 3 election eroded returns on domestic equities.

The country’s third-biggest money manager aims to raise its holdings in foreign debt securities to 10 percent of total assets by the end of this year, up from 5 percent, said Sopawadee Lertmanaschai, the agency’s secretary general. It cut investments in shares of Thai companies to about 9 percent from 10 percent, she said.

“The strategy will be to shift some investments from risky assets such as equities to safer securities such as foreign bonds,” Sopawadee said in a phone interview yesterday. “Politics will continue to hamper any rally in the Thai stock market.”

The SET Index has lost 1.4 percent this quarter, following eight straight quarterly gains, as overseas investors withdrew $520 million from Thai shares amid concerns the election will revive a political rift. Goldman Sachs Group Inc. and Credit Suisse Group AG advised investors this month to reduce holdings.

Prime Minister Abhisit Vejjajiva’s Democrat party is facing a challenge in the elections from the opposition Pheu Thai party, led by the sister of Thailand’s former leader Thaksin Shinawatra. Pheu Thai has the lead in opinion polls after pledging to raise minimum wages, extend tax incentives and guarantee rice prices for farmers.

Thaksin was ousted in a 2006 coup and has lived overseas since fleeing a jail sentence for abuse of power. Demonstrations by Thaksin’s supporters against Abhisit’s government last year left more than 90 dead.

Diversification

U.S. Treasuries headed for the largest quarterly gain in a year as a slowing economy and Europe’s sovereign-debt crisis boosted demand for the safest assets. U.S. debt returned 2.8 percent since the end of March, the most since the second quarter of 2010, according to indexes compiled by Bank of America Merrill Lynch.

“We will focus on investing in only foreign debt securities with investment-grade rating amid financial problems in Europe,” said Sopawadee. “We need to diversify our investments to generate higher returns than the domestic bonds, which offer very low yields now.”

The pension fund, which manages retirement savings for about 1.2 million state employees, had a return of 37.2 billion baht in 2010, a 46 percent increase from the previous year, according to a statement on its website. The gain was boosted by investment in domestic equities as the benchmark SET Index surged 41 percent in 2010, it said.

The fund has about 70 percent of assets invested in local bonds, said Sopawadee. Other assets include office buildings and alternative investments, she said.

--Editors: Andreea Papuc, Malcolm Scott

To contact the reporter on this story: Anuchit Nguyen in Bangkok at anguyen@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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