Singapore: International investors are buying Brazilian, Indian and Indonesian bonds, driving the biggest monthly gain in emerging-market debt in at least three years, as central banks cut interest rates to support their economies. Merrill Lynch and Co.’s LDM Plus Index of local-currency sovereign notes in 18 developing nations rallied 8.2% in dollar terms in December, the most since the index started in 2006. Indonesia’s domestic securities gained 29%, India’s climbed 12.6% and Brazil’s advanced 6.6%, according to Merrill. Rate cuts: The Reserve Bank of India building in New Delhi. Harikrishna Katragadda / Mint Investec Asset Management Ltd, Aberdeen Asset Management Plc. and Erste Sparinvest KAG, which together manage more than $6 billion in emerging-market debt, are turning bullish as inflation cools and currencies rally. The index had dropped 6.5% in the first 11 months as the worst global financial crisis since the Great Depression caused Pakistan, Ukraine and Hungary to seek loans from the International Monetary Fund (IMF). Investors expect rate cuts across many countries with no inflation problems going forward over the next couple of years, said Anton Hauser, who manages $1.2 billion in emerging-market debt in Vienna at Sparinvest, part of Austria’s biggest bank by market value. This means quite good returns on local-currency bonds in general. Policymakers are shifting focus from fighting inflation as recessions in the US, Europe and Japan erode export demand, shrinking wages and reducing raw material costs. The World Bank predicted on 9 December growth in developing economies will slow to 4.5% in 2009, from 6.3% last year, as global expansion cools to 0.9%. On Friday, the Reserve Bank of India (RBI) cut its benchmark overnight lending rate, or repurchase rate, to 5.5% from 6.5%. It also cut the reverse-repurchase rate, or the rate at which it drains money from the banking system, by a percentage point to 4%. India’s growth may slow to 7% in the year ending 31 March, from 9% or more in the previous three years, the government said on 23 December. Bank Indonesia lowered its benchmark for the first time in a year on 4 December to 9.25%. Brazil, India, Thailand and Mexico will cut borrowing costs this month, according to Bloomberg surveys of economists. Developing-nation debt plunged for much of 2008 as credit losses mounted, prompting investors to hoard cash and pare investments in everything but the safest government securities. Outflows from emerging-market bond funds averaged $800 million in the 19 weeks ended 17 December, according to EPFR Global, a Cambridge, Massachusetts-based research company.

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