JPMorgan is bullish on prospects for KoreaJPMorgan Asset Management bought dollar bonds from Korean issuers amid the busiest offerings in six quarters, as the nation’s economy rebounds.
Sales of foreign-currency notes jumped 65 percent to $11.2 billion from the previous quarter. That’s the most since the first three months of 2012. Korean dollar-denominated debt pays 178 basis points more than Treasuries, down from the high for this year of 229 in June, according to JPMorgan Chase & Co. indexes. That’s more than the 155 basis points on U.S. corporate bonds, Bank of America Merrill Lynch indexes show.
“We have added Korea’s dollar bonds in the last couple of months on both primary and secondary trading,” Stephen Chang, head of Asian fixed-income at JPMorgan in Hong Kong, said on Sept. 27. “Korea is on a better economic trajectory with healthier fundamentals and has a strong external position,” Chang said, adding that he is considering further increasing holdings in the nation instead of Southeast Asia.
Asia’s fourth-biggest economy expanded 1.1 percent in the second quarter from the preceding three months, the most in more than two years, and the Bank of Korea forecasts it will grow 2.8 percent in 2013 and 4 percent next year. Global bonds from the nation are also attractive as a record $94.5 billion of the debt matures next year, leaving investors flush with funds to buy notes, according to Moon Hong-cheol, a fixed-income analyst at Dongbu Securities in Seoul.
“Now is the right timing from both the investors’ and issuers’ perspectives,” Moon said.
Korean bonds have attractive premiums, high-quality ratings and “global recognition,” according to Sumit Bhandari, Singapore-based head of Asia-Pacific credit research at BlackRock.
“Korea’s dollar bonds have a place in a portfolio and we evaluate them closely,” Bhandari said.
GS Caltex, Korea’s second-biggest oil refiner, issued $400 million of 2018 notes last month at 99.548 cents on the dollar, Bloomberg-compiled data show. The securities, which are rated BBB by Standard & Poor’s, traded up at 99.715 as of 5:42 p.m. Hong Kong-time yesterday, according to the data.
Woori Bank issued $500 million of five-year notes to yield 160 basis points more than similar-maturity Treasuries. The securities, which have investment-grade ratings from the three major international credit assessors, were at 99.344 cents on the dollar yesterday at 5:44 p.m. in Hong Kong from an issue price of 99.341, according to the data.
The jump in bond sales from Korea comes as President Park Geun-hye seeks to maintain the economic recovery. While exports fell 1.5 percent last month, they jumped 7.7 percent in August from a year earlier, the most since January, official data show. Overseas shipments account for about half of the country’s gross domestic product. Factory output rose 3.3 percent in August from a year ago, the biggest gain in seven months.
In a sign of confidence in the economy, the won traded near the highest level since January on Oct. 2 as overseas investors bought local stocks for the 26th straight day. The currency closed on Oct. 2 at 1,074.04 per dollar, near the previous day’s intraday high of 1,072.3, which was the strongest level since Jan. 25. The Kospi index of shares has risen 7.3 percent since June 28.
Yields on Korea’s government bonds due March 2023 have risen 26 basis points this year to 3.43 percent amid a shift toward riskier assets. The cost of insuring the country’s government debt against non-payment using credit-default swaps has fallen 16 basis points this half to 75 basis points. The swaps dropped 7 basis points last month, the most since April, CMA data show.
“Korea is well poised for meaningful recovery towards year-end,” Ronald Man, Hong Kong-based economist at HSBC Holdings Plc, wrote in a research note dated Sept. 30.
As global investors turned toward Korean assets, the nation’s government sold its first global bond since 2009 last month, drawing orders for five times the $1 billion offered.
The 10-year securities maturing in 2023 were sold to yield 4.02 percent, 115 basis points more than similar-maturity Treasuries, the Finance Ministry said. That compares with an initial guidance of 135 basis points.
“The government’s successful dollar bond sale opened the door for public and private companies to follow suit,” Dongbu Securities’ Moon said.
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