TOKYO - Japanese asset managers are planning to venture deeper into emerging markets in the coming year as falling bond yields in traditional investment destinations, such as Europe, force them into riskier assets.
"We will increase exposure in Mexico next year and are looking for the opportunity to enter South Africa, which has one of the steepest yield curves around," said Akira Takei, global fixed income fund manager at Asset Management One in Tokyo. The spread between two-year and 10-year South African government bonds is around 150 basis points, versus a mere 10-basis-point spread in Japan for the same tenors.
"First, it was JGBs, then Treasuries, then mortgage bonds, then France, and then Spain, which is where the banks are now. Next year, the banks will probably go to Italy," he said, adding that any assets rated below Italy's would be junk and most banks wouldn't be able to buy those. One reason emerging market sovereign debt is becoming an option for more Japanese investors is that other popular high-yield investments have become too crowded. Investors have for years bought into packaged loans, known as collateralised loan obligations , for better returns.