(Bloomberg) — Some of the world’s biggest exchange-traded fund (ETF) providers are vying for billions of dollars expected to flow into Indian bonds over the next few years through inclusion in major global indexes.
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Since JPMorgan Chase & Co. decided last year to include Indian government bonds in its major emerging market indexes, BlackRock Inc., Amundi SA and Janus Henderson’s Tabla Investment Management unit have all added new ETFs to the sector. One of the companies that launched Asset management firm DWS Group estimates that these ETFs are expected to attract between $5 billion and $10 billion over the medium term.
“India is too big to ignore,” said Benoît Sorel, global head of ETFs, indexes and smart beta at Amundi, Europe’s largest ETF provider. “It’s becoming an important allocation in emerging market debt. The first significant interest is coming from professional investors, who are benchmarking their investment allocations.”
Soler worked at BlackRock for more than a decade before joining Amundi last year, where he helped oversee the rollout of the firm’s new Indian government bond ETF last month.
India’s weight in JPMorgan’s emerging market bond index will jump from 4% currently to 10% by March. The securities will also be added to a developing market debt gauge owned by FTSE Russell and Bloomberg. The process will funnel billions of dollars into a largely domestically driven market that has until now been largely insulated from global fluctuations due to low foreign ownership.
Rupee-denominated government bonds currently have the highest yields in Asia, according to data compiled by Bloomberg based on the largest regional markets. Indian bonds have seen $15.7 billion in inflows this year, the most in Asia after China, South Korea and Japan, according to data compiled by Bloomberg.
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DWS believes there is ample scope for wealth growth in India given India’s demographic profile and relatively low correlation with other global markets.
“The strength of India’s stock market, the youth and education of its workforce, as well as its low exposure to geopolitical risks, make India’s case attractive to both equity and debt investors. “,” said Olivier Souliac, head of Xtrackers indexes. At DWS in Frankfurt.
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Not everyone is convinced that now is the ideal time to buy Indian government bonds.
“It’s too crowded,” said Shamaila Khan, head of fixed income emerging markets and Asia Pacific at UBS Asset Management in New York. “India is a bright spot in the medium term, but the good news is overpriced at the moment.”
He said better investments would be dollar bonds from Sri Lanka and Pakistan and high-yield bonds from China.
PineBridge Investments said this month it was avoiding buying Indian government bonds, citing bureaucratic challenges in investing in the country and the firm preferring the higher carry offered in Latin America.
BlackRock says one of the benefits of buying an India bond ETF is that it allows investors to avoid bureaucratic hurdles in investing in the country.
“There are structural challenges to making these bonds easily accessible to foreign investors,” said Hui Hsien Koai, chief fixed income product strategist for Asia Pacific at BlackRock in Singapore. “ETFs take all that away. ETFs are very accessible to everyone.”
There are many reasons why investors cannot ignore India for long, she said.
“This is the last large market, over $1 trillion, to get into a widely followed index. There’s depth, there’s breadth, there’s a variety of tenors, long and short, and that’s why we’re entering this game. This is why I can do it.”
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