Asia's Best Bond Returns Aren't Enough to Lure Global Investors

(Bloomberg) -- Even with Asia’s top performance, foreign investors are still not convinced to buy Philippine bonds.

Local-currency notes in the Philippines have yielded almost 10 percent this year through April 29, compared with less than 2 percent for China and India, data compiled by Bloomberg show. High taxes, a less liquid market, and tedious documentary requirements are some of the gripes heard from overseas investors, who make up only 7.5 percent of peso bond holders.

Asia's Best Bond Returns Aren't Enough to Lure Global Investors

Key Insights:

  • “Inflation has clearly peaked, the current-account stabilized and valuations are juicy,” said Swapnil Kalbande, Singapore-based Asia rates strategist at Deutsche Bank AG. “But again, that helps only marginally given the outstanding issues such as limited liquidity and less than attractive taxation structure for investors."
  • The Philippines charges a 20 percent withholding tax on interest income from its local bonds, according to the Asian Development Bank. Foreign companies are subject to 30 percent tax on the gross income derived locally, while non-resident individuals not engaged in trade or business pay 25 percent.
  • The Philippines domestic bond market is estimated at $116 billion in 2018, the smallest among 10 Asian markets after Vietnam, according to the ADB.
  • Their representation in the benchmark JPMorgan GBI-EM Global Diversified Index as of April 25 stood at 0.3 percent, according to the index compiler.
  • The complexity of documentary requirements is another hurdle, said Donghyun Park, principal economist at the ADB’s economic research and regional cooperation department in Manila; steps are a lot simpler in countries such as Indonesia.
  • As part of a wider campaign to boost the efficiency of the tax regime, the government is proposing to cut levies on gains from local bonds, Treasurer Rosalia de Leon said.
  • The Bureau of the Treasury and the central bank have also adopted reforms to boost liquidity, including a permanent increase in the volume of Treasury bills offered and the introduction of a repurchase market.

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