India a bond trade model for Asia: WSJ

IANS[ SATURDAY, DECEMBER 14, 2002 11:58:37 AM ]
NEW YORK:

India is being upheld as a model by some analysts for bond trading despite its reputation for stock market scandals, The Wall Street Journal has reported.

The paper said some Asian governments trying to develop world-class domestic bond markets could look to India for guidance.

Quoting analysts, it said India's rupee bond markets had more to offer foreign investors than some of its counterparts in Asia, including Singapore and Hong Kong, even though the "junk-rated subcontinent" was not the most intuitive choice.

The article compared the 16.2-per cent yield of government bonds in India with 12.5 per cent in South Korea and 11 per cent in the US and said India's economic fundamentals were "sound".

Quoting Phoon Chiong-tuck, Singapore-based chief investment officer for the $380-billion Deutsche Asset Management, it said because of improved fundamentals, India's interest rates which were high in January had steadily declined.

Among the bond traders that have been described as "fans" of the Indian debt market were JP Morgan, Alliance Capital, Templeton, Zurich Asset Management and Prudential.

These funds and insurance firms, it said, were early movers and caught on the popularity for the debt market among local individual investors.

The report also had some words of caution for investors:

• There is a 20 per cent withholding of tax for foreign investors registered with the securities regulator, unless they are investing through a mutual fund.

• Interest incomes and capital gains are subject to tax in many jurisdictions.

• Strong economic fundamentals could mean fewer good deals to lure investors, resulting in returns unlikely to remain high.

• Indian debt market carries more risk than debt in many Asian countries.

• The country is rated BB+ (Double-B-Plus) by Standard and Poor's, which is below the BBB (Triple-B) investment-grade standard.

Yet, the headline for the article seemed to suggest what the underlying sentiments expressed by analysts were: "For Asia, India fits Bill of Bond: Market Guru."