Economics: Wisdom Tree ETFs pour money into Asia’s local currency bonds

Blog Note:

  • Killing the goose that lay the golden egg is easy when one is hungry!

Foreign investors are sort of at a pause!

And Thai economic units, like the Bank of Thailand and the Stock Market get a chance to think.

To foreign investors, the question is-pump money into Asia, and it kills the economy that their money is attracted to, but not to pump in money, and how to live without that good return?

Like they have been pumping in funds into Asia, but also at the same time, selling out of Asia. That seems very confusing. But the following is interesting.

Wisdom Tree ETF is like gung ho on local currency Asian bonds and yet it is a mysterious-giving out very little information about its activities.

Yet according to Seeking Alpha, Wisdom Tree ETFs is like able to build up a huge asset, making it larger than most ETFs of its class. Why is this important? Because Wisdom Tree can give an indicator as to what is actually occurring-in this very confusing global fund flow picture.

  • The following is from Seeking Alpha:

Wisdom Tree provides surprisingly little information on the fund

WisdomTree (WSDT.PK) last Thursday introduced WisdomTree Asia Local Debt Fund (ALD), a new actively-managed ETF targeting Asia Pacific ex-Japan local currency debt. WisdomTree provides surprisingly little information on the fund, but somehow managed to accumulate a massive $145 million in assets prior to launch.

ALD seeks a high level of total return (income as well as capital appreciation) by investing in local debt denominated in the currencies of Asia Pacific ex-Japan countries.

The 0.55% expense ratio seems steep for a fund with the majority of its assets in cash (49.0% money market and 3.6% in T-bills). Only 47.4% of the fund is actually invested in foreign bonds according to the summary page.

The fund has 12 constituent countries and current country allocations are said to be Indonesia 11.2%, Malaysia 11.1%, South Korea 11.1%, Thailand 11.1%, Singapore 11.0%, Australia 11.0%, Hong Kong 5.7%, India 5.7%, China 5.6%, Philippines 5.6%, New Zealand 5.6%, and Taiwan 5.4%.

However, this appears to conflict with the 52.6% in U.S. Treasury Bills and dollar denominated money market funds. The apparent exclusion of Japan is another mystery. Many Asia-region products cap or exclude Japan due to its relatively large market cap, but ALD is actively-managed.

ALD’s yield is unknown at this time. Currency exposure also cannot be determined due to the conflicting information on holdings and country allocations. The stated duration of 2.93 is also questionable since we don’t know if that accounts for the U.S. cash allocations or not.

Despite all the unknowns, WisdomTree appears to have an instant success in ALD. Initial assets of $145 million places it ahead of more than 680, nearly 60%, of all other ETFs and ETNs on the market.

Additional information is in the press release (pdf) and prospectus (pdf).

Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

  • The following is from Xinhua:

Thailand needed to cope with more foreign capital inflows on continued strong economic growth in Asia and financial troubles in developed nations, Thai central bank governor said on Tuesday.

Bank of Thailand governor Prasarn Trairatvorakul said domestically, rising inflation remained a concern as his agency has been raising its policy rate in trying to cap soaring prices.

Economic growth in Thailand and other Asian nations, at a pace much faster than that of developed nations, has drawn foreign capital inflows and the growth momentum was expected to continue in 2011.

“For this year, the momentum is expected to continue, while the rapid growth of the middle class in large Asian economies such as China and India makes the prospect of intra-regional demand even more hopeful over the longer horizon,” Prasarn told local and foreign investors at a Euromoney conference.

Growth of Thai economy was also reflected in the robustness of listed companies in the Thai stock market.

Charamporn Jotikasthira, president of the Stock Exchange of Thailand (SET), told the same conference that net profits of Thai listed companies in 2010 increased more than 30 percent from 2009, offering high dividends to their shareholders compared to companies listed in many other Asian countries.

Charamporn said at end-2010, the SET index closed at 1,033 points, increased by 56 percent in U.S. dollar term over its end- 2009 level, placing the Thai stock market as the best performing market in the Asian-Pacific region and among the top five best performing exchanges in the world.

Central bank governor Prasarn said due to excessive liquidity in developed nations’ financial market and troubles arising from their large public debts, investors have turned away from low-risk government securities in the West to high-risk Asian securities, contributing to the inflows in the region.

However, he said government securities of advanced economies were likely to remain the ultimate safe haven assets.

“As such, portions of capital flows could reverse themselves very easily when risk appetite wanes,” Prasarn said in his keynote address titled “Living with Capital Flows: A Delicate Balancing Act.”

He said foreign capital played a vital role in driving Thai economy in the past 30 years by raising industries’ productivity and local people’s living standard.

“Capital inflows have always been and will continue to be welcomed into Thailand,” Prasarn said.

Despite that, he said the Bank of Thailand needed to monitor and, at times, intervene in the market, to mitigate the influx of capital inflows on local currency fluctuations.

The use of interest rate policy, however, was primarily meant to cap rising inflation, he said.

“Under inflation targeting, the policy interest rate is used primarily to help maintain price stability to achieve long-term balanced growth of the domestic economy,” he said.

He added: “Thus, our interest rate policy is not meant to deal directly with capital inflows.”

But he did not deny the effect of rising interest rate on inducing more capital inflows.

“I hope that I have so far convinced you that living with capital inflows is not easy and will require efforts from the public as well as private sector,” Prasarn told the investors in his address.

Later in answering reporters’ questions, the central bank governor said this year’s inflation could surge above the upper limit of three percent the government had set as the target.

He said the Thai central bank’s policy rate, the benchmark rate for commercial banks, remained at a very low level compared to many other Asian nations.

On March 9, the Bank of Thailand raised its policy rate by 25 percentage points to 2.50 percent per annum in responding to rising inflationary pressure, after having increased the rate twice in December and January, each time by 25 percentage points.

Commenting on surging global oil prices due to political turbulence in the Middle East and North Africa, Prasarn said if the crude oil price in Dubai climbed above 130 U.S. dollars per barrel, it would start eating into Thailand’s current account surplus.

Currently, the benchmark crude oil stood at 108.6 dollars per barrel.

Thailand is a net energy import country, with 60 percent of its domestic demand coming from imports of mainly fuel oil.

(Forget mysterious Wisdom Tree ETFs, think about how sexy a mysterious chick can be)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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