$453bn bond manager shifts bets from India amid tensions

Bloomberg

Western Asset Management Co is reducing its Indian government bond holdings as tensions around a new citizenship law and the Kashmir region cloud the economic outlook.
The $453 billion investor, an affiliate of Legg Mason Inc, is diverting some of its funds into longer-dated Malaysian and Chinese debt, according to Desmond Soon, head of investment management for Asia ex-Japan. It has an overweight position in India bonds.
The initial market euphoria from prime minister Narendra Modi’s re-election last year is wearing thin as economic growth stutters and a policy making it harder for Muslim migrants to get citizenship stirs protests. Foreign holdings of Indian sovereign debt have dropped to near a three-month low.
“It certainly distracts prime minister Modi’s government from making the necessary economic policy and reform to focus on the economy,” Soon, a 30-year investment veteran, said in Singapore. “We are in the process of reducing India somewhat.”
Angry protests have erupted in many Indian states, forcing the government to send in hundreds of soldiers to aid local police. Modi also stoked tension in Kashmir, the nation’s only Muslim-majority state, when he ended seven decades of autonomy for the area in 2019.
The changes, part of the election promises made by Modi’s Hindu nationalist government, have created mistrust among Muslims, who form about 14% of the population.
Despite five interest-rate cuts last year to shore up growth, yields on 10-year India bonds remain some of the highest in Asia at 6.64%.
A recent rally in the market, spurred by bond purchases from the Reserve Bank of India, has stalled as inflation surges to a five-year high. Stagflation looms as the economy grinds toward its slowest expansion in more than a decade.
The central bank will probably refrain from cutting interest rates in the coming months, and that along with the deteriorating macro environment, is probably why global funds are turning away from Indian bonds, said Ek Pon Tay, a portfolio manager for emerging-market fixed-income at BNP Paribas Asset Management.
“An expected increase in the fiscal deficit and economic growth not yet rebounding from below-trend levels mean bond yields will be under further upward pressure,” Tay said.

Malaysia Switch
Western Asset is buying Malaysian debt as the oil exporter will benefit medium term from higher energy prices, Soon said.
Gobal investors may also pour another $150 billion to $200 billion into Chinese bonds as the debt is gradually included in global benchmarks, he said.

Microsoft CEO Nadella calls India’s citizenship limits ‘sad’
Bloomberg

Two high profile Indian-born business leaders — Microsoft’s Satya Nadella and venture capitalist Vinod Khosla — have added their voices to criticisms of India’s new religion-based citizenship law that has roiled the country and led to violent protests.
Nadella, Microsoft Corp’s chief executive officer, said the Citizenship Amendment Act, which bans undocumented Muslim migrants from neighboring countries from seeking citizenship in India while allowing immigrants from other religions to do so, is “sad.”
“I think it’s just bad,” Nadella said on Monday at a Microsoft event for technology editors in New York. “If anything, I would love to see a Bangladeshi immigrant who comes to India and creates the next unicorn in India, or becomes the CEO of Infosys.
That should be the aspiration.”
Longtime Silicon Valley venture capitalist Khosla, echoed Nadella’s comments on the topic. “I strongly believe India should be a secular country!” he wrote via email late Monday, when asked about the law.
Read more: Modi Reform Doubts Prompt Western Asset to Trim Bond Holdings
The software maker’s Indian Twitter account later tweeted a statement from Nadella that seemed to moderate the initial comments, beginning with the thought that “every country will and should define its borders, protect national security and set immigration policy accordingly.”
‘Multicultural India’
“I’m shaped by my Indian heritage, growing up in a multicultural India and my immigrant experience in the United States,” the written follow-up statement continued. “My hope is for an India where an immigrant can aspire to found a prosperous startup or lead a multinational corporation benefiting Indian society and the economy at large.”
The comments were reported earlier by Buzzfeed, which asked Nadella the question at the event.
Protests, led mostly by students of all faiths, have erupted across India since Prime Minister Narendra Modi’s government pushed the Citizenship Amendment Act through Parliament in December. However condemnation from prominent Indians, within the country and abroad, has been slow to come.
“Well-known names criticizing the citizenship move is bad for India’s image abroad,”said Arati Jerath, a New Delhi-based author and political analyst. Criticism from eminent people along with continuing protests will “scare off potential investors at a time when economy desperately needs infusion of capital. I don’t think the government can afford to ignore this anymore.”
How literate need to be educated ! Perfect example. Precise reason for CAA is to grant opportunities to persecuted minorities from Bangladesh, Pakistan & Afghanistan.

A spokeswoman and federal lawmaker for the ruling Bharatiya Janata Party however sought to dismiss Nadella’s comments. “How literate need to be educated! Perfect example,” Meenakshi Lekhi tweeted, adding “How about granting these opportunities to Syrian Muslims instead of Yezidis in USA?”
Lekhi was likely referring to President Donald Trump’s travel ban that ban includes visa restrictions on five majority-Muslim nations: Iran, Libya, Somalia, Syria and Yemen, as well as Venezuela and North Korea.
The Yezidis, a tiny religious minority in northern Iraq, faced a brutal genocide at the hands of militants of the Islamic State.