Reduce exposure to Asia

Bond investors should choose the Americas over Asia.

So says Patrick Bradley, a fixed-income product specialist at Brandywine Global Investment Management. His firm manages the Renaissance Global Bond Fund.

When looking at emerging markets, he explains, investors must “distinguish between economies that exhibit positive economic fundamentals in terms of budget policies and current account surpluses, and those countries that are dependent on continued portfolio flows and short-term borrowing abroad.”

People have to be selective when looking for opportunities, adds Bradley. As a result, he has cut his Asian exposure to its lowest level in years. Instead, he’s focusing on areas such as Mexico and Brazil, and the U.S. dollar, which “is relatively cheap.”

Read:

That’s because “Manufacturing activity in the U.S. [is] picking up [and] there’s the potential for developments in the U.S. energy industry,” says Bradley. “Better economic growth in the U.S” will help boost the value of the U.S. dollar.

He doesn’t expect a major slowdown in China, however, which is good news for broader Asia. In particular, Bradley expects positive developments in Japan, for example, “as the country rebuilds from the earthquake and tsunami.”

Read: Bank of Japan rosy on economy

In fact, he still favours South Korean bonds, though he’s completely hedged South Korea’s currency into the U.S. dollar due to the “budding currency war between South Korea and Japan.” Both regions “compete in many of the same industries and the Yen weakened dramatically over the last year.”

Read: Currency strategies key to managing geographic exposure

Bradley is positive on Australian and New Zealand bonds as well, but he also hedges those currencies.

Read:

Chinese investors choose U.S. over Canada

BRICs lose favour as money pours into Europe

Asia’s rich confident in advisors, regulators

Fixed-income investors must go global

Where to look in emerging markets