(Bloomberg) -- Brandywine Global Investment Management LLC is trimming its bond exposure in China and replacing it with Indian debt, a move that may make the South Asian nation its sole and largest exposure in Asia.
China's bonds have rallied “so far that we're moving out of it,” David Hoffman, chairman and head of global fixed income at the US-based money manager, said in an interview. Indian sovereign bonds stand out with higher yields relative to other Asian nations, and “could easily be our biggest Asia exposure.”
Foreign investors are turning more bullish on Indian bonds ahead of their inclusion into JPMorgan Chase & Co.'s emerging market debt gauge in late June, a move that will bolster the nation's standing in global portfolios. While Chinese government debt has rallied on the back of economic woes and expectations for looser monetary policy, an upcoming issuance bonanza may cool the frenzy.
Indian sovereign bonds have seen about $8 billion of inflows into the so-called Fully Accessible Route — or FAR securities — since the JPMorgan announcement, though there were some outflows in April amid a global debt selloff. The FAR bonds have no restrictions for foreign investors.
A stable currency thanks to the central bank's intervention has been a bit of a deterrent, according to Hoffman.
“We prefer markets where you can buy bonds and the currency rallies, pushing down inflation and then allowing the bonds to rally more,” Hoffman said. “But every time I've liked India in the past they've never let the currency rally.”
Read: Bullish Case for Indian Rupee Dented by RBI's Intervention Fears
Still, the bonds look attractive from a relative value basis, he said, adding that the fund can “buy a lot more.” India's benchmark 10-year yield stands at about 7.12%, the highest among major Asian markets, while similar-dated Chinese government notes yield around 2.3%.
JPMorgan estimates foreign inflows to India bonds because of its index inclusion will be between $20 billion and $25 billion, according to the firm's global head of index research.
Bloomberg Index Services Ltd. will also start including India to its emerging markets index from January. Bloomberg LP is the parent company of Bloomberg Index Services, which administers indexes that compete with those from other providers.
The Brandywine Global Opportunistic Fixed Income Fund returned 6.5% in 2023 versus the FTSE World Government Bond Index at 5.2%, according to the fund's factsheet.
“If we don't see other things that potentially could gain value, then India could be the most attractive market in a year, so we put on a bunch of it,” Hoffman said.
--With assistance from Ronojoy Mazumdar.
(Adds more details on index inclusion)
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