Sk-euro commercial paper finds favour with ktam

Despite the South Korean government bonds' attractive yields, the risks - notably oil-induced inflation and baht-to-US-dollar and dollar-to-won currency-conversion risks - are manifold. By investing in dollar-denominated euro commercial paper (ECP), fund managers can cap their risks, said Teeraphan Jittalarn, chief investment officer at Krung Thai Asset Management (KTAM).

It was these South Korean-bond funds that, like ginseng, kept KTAM healthy and afloat in the net asset value race among asset-management companies.

Since the beginning of the year, investors have been taking a profit as stock prices tumble, causing net asset value to decline, said CEO Somchai Boonnamsiri. Even with a 24-per-cent increase in net asset value in the first half of the year - Bt35.5 billion against last year's Bt28.4 billion - overall net asset value remains in deficit, he added. Industrywide growth is only a 1-per-cent blip.

Somchai hopes the six-month South Korean ECP, with returns of 3.8 per cent, will sustain the growth.

The company also has plans to split its Krung Thai Global Treasury 1 Fund, launched a few months ago, into dollar and euro funds. Targeting businesses and parents with children abroad, the new arrangement will allow greater flexibility in controlling exchange-rate risks, said Teeraphan. There is also a plan to roll out a similar fund in yuan, but Somchai believes there will be regulatory barriers to that.

With the baht so volatile since the beginning of the year - rising 7 per cent in the first quarter, then dropping 5 per cent in the second, research by SCB Securities showed - these bond funds are a welcome option for investors to limit their exposure.

Teeraphan said that with markets swinging erratically, investors should concentrate on the numbers. He suggests now is a good time to invest in both equity and bonds.

"If you see a bowl of noodles going up to Bt35, don't you think companies will raise their prices, too?" he said.