(Bloomberg) -- PineBridge Investments is sticking to its stance of avoiding Indian sovereign bonds, which have turned into a favorite pick among global investors this year, amid bureaucratic challenges of investing locally and a preference for higher carry in Latin America.
“We have to weigh the settlement risk with market risk and for the moment, I have more settlement risk than market risk,” said Anders Faergemann, a senior portfolio manager in London, referring to the risk of a short window for settling bond trades against the risk of missing out on being invested in India.
“We prefer Latin American bonds to say India or broader Asia as we are seeing more upside mainly from a carry perspective in Latin America,” he said an interview.
PineBridge, which manages about $170 billion of assets, has zero exposure to India’s local sovereign debt nor does it hold indirect exposure, either via supranational paper or derivatives like total return swaps. However, it has exposure to dollar bonds issued by Indian corporates.
The fund’s stance is in sharp contrast to other overseas investors who have flocked to India as the country got included to global bond indexes. India currently enjoys a 4% weight in JPMorgan Chase & Co’s emerging-markets bond index which will be scaled up to 10%. Bloomberg and FTSE Russell are also set to add India to their emerging-market indexes.
Lengthy Documentation
Investors have complained of challenges of setting up shop in India ranging from lengthy documentation to the intricacies of settling a trade and the complexities of paying taxes on any profits. The capital markets regulator has been taking steps to ease investment for foreigners.
Read: Funds Circling India Debt Risk Being Tripped Up by Red Tape
Still, global funds have bought almost $16 billion in Indian bonds so far this year, driven by the country’s growth prospects, a credible central bank and fiscal restraint.
“Maybe, in a period when we would be looking for bond market stability and not a lot of upside in valuations, the Indian bond market would be a natural go-to in terms of attractive carry-to-vol returns,” Faergemann said.
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