Tue, Jun 11, 2019 - Page 12 News List

Corporate bonds are safe haven in slowdown: FSITC

By Crystal Hsu  /  Staff reporter

Global trade tensions might extend the economic slowdown by one or two quarters, making corporate bonds a safe investment tool with decent yields, First Securities Investment Trust Co (FSITC, 第一金投信) said yesterday.

International research institutes had expected the world to emerge from the slowdown this quarter, but are now looking at a delay of three to six months after Washington and Beijing last month raised tariffs on bilateral goods with threats of more hostile moves if necessary.

The US-China trade dispute has pushed central banks to embrace monetary easing, with India, Australia, New Zealand, Malaysia and the Philippines announcing rate cuts, the asset management arm of state-run First Financial Holding Co (第一金控) said.

“Low interest rates are here to stay and will grow into a new market norm,” company vice president Jack Tang (唐祖蔭) said.

Low interest rates give companies the motivation to borrow and invest when they might prefer to wait until the trade spat settles, Tang said.

The US Federal Reserve might join the bandwagon and cut interest rates once to twice this year, even though US economic data has so far remained relatively strong, Tang said, adding that he is betting on a single rate cut in September.

US corporate profits are forecast to slow to 3.8 percent this year, compared with 20 percent last year and a long-term average of 8 percent, which is enough reason for stimulus measures, he said.

With the uncertainty, retail investors are also turning conservative and avoiding risky assets, company portfolio manager Jonas Hsu (許書豪) said.

Holding onto cash loses wealth to inflation, Hsu said, citing US billionaire investor Warren Buffett’s views about the harm of low interest rates.

Hsu said that the company is instead investing in investment-grade US corporate bonds, which generate an annual yield of 3.4 percent.

US companies have issued bonds totaling US$21 trillion over the past 20 years with 83 percent of them assigned investment-grade ratings, Hsu said.

Company chairman Paul You (尤昭文) said that from Monday, funds would be taken in to target the top 100 US corporate bonds, as a means of pursuing returns while reining in risks due to market turmoil.

The company has a positive outlook on exchange-traded funds (ETFs), after seeing a jump in their popularity last year.

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