FUNDVIEW-MFC Global Investment likes corporate bonds

HONG KONG, June 24 (Reuters) - Corporate bonds offer a good opportunity for investors as companies' cash holdings swell as a result of spending cutbacks, downsizing and inventory reduction, a top MFC Global Investment Management official said.

"Corporate bonds are a smart place to be -- because you are paid to wait and paid first," said Barry Evans, chief investment officer, fixed income.

MFC Global is the asset management division of Manulife Financial Corporation (MFC.TO).

He said the 6 percent free cash flow generated by U.S. corporations and that by Asian corporations at around 5 percent exceeded the long term average of 4 percent because of the reduced capital expenditure and cost controls put in place in response to the global financial crisis.

Bond investors like companies with strong cash balances or the ability to generate high cash flows because they enhance their ability to service and repay their debt.

"The point of watching the cash on the table is the physics of fluids. This is money that needs to find another home," he said adding firms cannot deploy funds in money markets for long and need to re-invest in business to sustain earnings.

Investors have so far this year pulled out $159 billion from money market mutual funds in a sign that risk tolerance is increasing. Money market funds serve as a holding area for investors who are unsure of where to put their money.

Corporate bonds are also supported by better trade volumes in the secondary markets.

"The broker-dealer is more willing to match the orders. In Q4 they had retracted and shut down their balance sheets and prevented trades going through," said Victoria Ip-Cheung, MFC Global's Asia head of investments, fixed income.

MFC Global, which has $240 billion under management, favours bonds from borrowers such as utility and real estate companies because of their cash-rich position and longer projects.

On the government bond side, the fund likes Asian local bonds particularly those in Indonesia, Malaysia and on a selective basis, Philippines.

"We expect a lot of supply to emerge out of Philippines but it is a more opportunistic type of trade," said Ip-Cheung.

There are growing worries that Philippines will exceed its targeted annual budget deficit of 250 billion peso, already revised upwards thrice, amid falling state revenues and high government spending.

That has stoked fears of additional government borrowing with some analysts even fearing a negative rating action. (Reporting by Umesh Desai; Editing by Tomasz Janowski)