Asian buyers increasingly keen on Australian debt
* Japan, Malaysia & Taiwan funds warm to Aussie bonds
* Yield and diversification are key drivers
* Asian buying to support A$, but complicates RBA's job
By Cecile Lefort
SYDNEY, Aug 22 (Reuters) - Asian investors are increasingly taking a shine to Australian bonds to diversify their portfolios in a move that could support the falling Australian dollar but also complicate central bank efforts to stimulate the slowing economy.
Last week, Japanese government data showed local investors buying foreign bonds had risen to $16.5 billion in the week of Aug. 5, the highest in three years.
A detailed breakdown was not available but brokers say some of that money has been going to Australia, with some Japanese fixed-income funds investing in Australian dollar bonds for the first time.
"It may suggest the (Japanese) government's encouragement is contributing to a shift in focus in Japan towards investment offshore," said Greg Gibbs, a strategist at Royal Bank of Scotland in Singapore.
With 10-year Japanese government bonds yielding less than 1 percent, it is no wonder investors are attracted to Australian 10-year sovereign debt paying around 4 percent.
Australian firms with lower-rated debt have also been successful in attracting foreign investors. Borrowers have extended their Australian dollar bond roadshows to Asia, an unusual move for a region that typically buys U.S. dollar or euro-denominated debt.
Regulated electricity company SP AusNet, Melbourne Airport and property firm Lend Lease all met investors in Hong Kong, Singapore and Japan ahead of their bond sales.
And the results paid off.
Alastair Watson, treasury manager at SP AusNet, said that Asian buyers took up more than half of the A$430 million BBB-plus notes it sold this year and that Japanese fund managers and life insurers were big buyers.
While Hong Kong and Singapore investors accounted for most of the Asian participation, bankers noted signs of emerging appetite from Malaysia. Taiwanese investors, especially commercial banks, have also started showing an interest in Australian debt as they look to slowly expand their portfolios.
In all, participation from Asian investors in Australian dollar non-government bonds ranged between 30 percent and 50 percent in recent months, up from 20 percent in the last few years, according to National Australia Bank (NAB) estimates.
"Only a few years back, the closest Australian issuers came to Asia was typically flying over the region on the way to the U.S. market," said Brad Scott, head of corporate bond origination at NAB.
"Now its becoming more a destination in itself and a port of call for issuers looking to diversify their investor base."
As a result of this support from Asian investors, some bond offers were increased, allocations to investors reduced and pricing lowered from their initial levels.
Part of the appeal comes from Australia's relatively strong economy and high cash rate compared with its rich-world peers.
"With the instability we have seen in Europe, a large number of investors have expanded their geographic horizon to include stronger and more stable economies like Australia," summarises Ed Waters, executive director at ANZ Debt Capital Markets.
All that Australian dollar asset buying will also provide some support to the local currency. That is not what the Reserve Bank of Australia (RBA) needs as it tries to stimulate a sluggish domestic economy.
The central bank has slashed interest rates by 225 basis points to a record low of 2.5 percent since 2011, partly to offset the impact of a strong currency.
Even though the Aussie dollar has lost 14 percent since April to last trade at $0.8986, the RBA has called for a further decline to boost export competitiveness. (Reporting by Cecile Lefort; Editing by Kim Coghill)
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