Investors unclear on emerging markets

JAKARTA (JP): Global investors often find it difficult to distinguish one emerging market from another, says William H. Overholt, the managing director of the Hong Kong branch of Bankers Trust Co.

Overholt said that when Brazil and Mexico had trouble in 1982, a lot of lenders and investors pulled out of Thailand and Indonesia.

"Likewise, when the Mexican peso took a dive last year, hedge funds had a run on the Thai baht and the Hong Kong dollar," he told the 27th congress of the International Association of Financial Executives Institutes.

He said Bankers Trust had spent a lot of time and made a considerable amount of money analyzing why Thailand was not as vulnerable to financial crises as Brazil, and why the Hong Kong dollar was not subject to the same pressures as the Mexican peso.

Overholt said most Indonesian company bonds were more expensive to trade than other developing countries' company bonds even though they had lower ratings. He said this was happened because investors had little knowledge of the Indonesian economy.

According to Bankers Trust analysts, investors who bought Indonesian pulp and paper bonds were rewarded with higher yields and lower risks than if they had invested in comparable North American pulp and paper companies' bonds, Overholt said.

"The Indonesian deals traded 100 to 200 basis points wider on average than the North American deals but offered better or equal credit ratings, and, in many cases, lower risk profiles," he said, adding that the risk and reward relationships of the two markets was apparently inverted.

Even after ignoring Indonesian sovereign risk, estimated at 100 basis points, investors still picked up 50 to 100 basis points, he said.

He said investors bought more Indonesian pulp and paper company bonds after his company released its findings.

Since then, yields on Indonesian company bonds have tightened considerably, he said. (hen)