By Muskan Arora
Arsa Indaravijaya, chief investment officer of Thailand’s $45B Government Pension Fund, has increased exposure to emerging market debt and gold, citing global interest rate differentials as a key driver.
Prior to the so-called “Liberation Day” — when U.S. President Donald J. Trump unveiled his proposed tariffs for all trading partners on April 2, 2025 — the pension plan anticipated continued U.S. dominance to support long-term growth. When the tariffs were announced, the CIO began implementing dollar-based strategies, including the use of “dollar bars,” which involve investing a fixed dollar amount in a target security at regular intervals regardless of price—aimed at mitigating risk through consistency.
However, Indaravijaya has since warned that Trump’s tariffs could push the U.S. into stagflation, with inflation potentially slowing earnings growth and increasing debt levels.
“Interest rate differential and real yield also drive average return,” said Indaravijaya, in an interview with Markets Group. “Further, this year has been a year of a lot of incidents, and I would expect [the] recent political unrest in [the] Middle East to hike the oil prices $80-$100 per barrel.”
The pension plan’s shift to emerging market allocations, including Brazil and Mexico, has allowed inflationary pressure to subside. Thailand’s sovereign currency has been one of the top-performing Asian currencies this year, with a +10.9% year-to-date gain. Its strength has prompted the CIO to increase allocations to local currencies within emerging markets earlier this year, with plans to add further exposure when conditions are favorable.
While emerging markets present compelling opportunities in the current macro environment, Indaravijaya remains cautious, noting that EM economies are often more sensitive and “less cushioned” against external shocks. A weaker dollar — down roughly 10% year-to-date — has been supportive of EM assets but also signals dovish U.S. monetary policy and rising fiscal uncertainty, both of which pose risks for emerging economies.
The pension plan sees emerging markets gaining momentum due to improving fundamentals driven by reforms in China, as well as attractive valuations and carry opportunities in Latin American and Asian currencies.
“This year, elevated inflation has not faded away and developed market rates tend to move in tandem to rising inflation than do the EMs,” added the CIO. “Latin America also offers substantial carry and real yield. With key indices (MSCI World Equity and Bloomberg Global Aggregate Credit index) having U.S. as majority in the benchmark, adding EM debts, local currency, helps diversify a great deal.”
The MSCI Emerging Markets Index returned +12.7% over the 12 months through May 2025, while the JPMorgan EM FX Volatility Index fell from 12% in early 2024 to around 6-7% by mid-2025, cutting volatility nearly in half.
Indaravijaya, who began his career as a stock analyst, joined the pension fund in 2022. During his early tenure as CIO, he helped build out the fund’s global rates and foreign exchange teams alongside a small core group of colleagues.
Thai Bond Market: The Safe Haven
In 2022, Indaravijaya focused on the breakdown in the traditional bond–stock correlation, as both asset classes delivered negative returns simultaneously. The pension plan responded by actively using derivatives, including Treasury futures—not just as a hedge for the bond portfolio, but also as a broader macro hedge for the entire portfolio.
Looking ahead to 2026, the CIO expects the Thai bond market—often considered a “safe haven” locally—to expand its investor base, particularly among insurers across various sectors. He also noted that if the Kingdom of Thailand or its Credit Default Swap market moves forward with issuing dollar-denominated bonds, those instruments could serve as valuable benchmarks for local corporates seeking U.S. dollar funding.
“During the past six to nine months we were affected from the externalities like Chinese electric-vehicle dumping car price, and also the oversupply in certain sectors from China,” he said. “Those companies have been affected quite a lot as leverage rose along with deteriorating debt service ratios. Some were looking for an extension of principal repayment.”
He further pointed out concentration risk in specific sectors — including the auto industry and hire-purchase real estate, both of which are highly sensitive to interest rate fluctuations.
Another pillar of stability, Indaravijaya said, is the Thai bond market’s historical correlation with gold. Given the country’s robust gold trading activity, rising gold prices often trigger dollar-gold sales and subsequent baht purchases, helping to strengthen the local currency and reinforce bond market resilience.
On the environment social and governance front, Indaravijaya highlighted the Thai market’s progress with green bonds, which have been present for nearly seven years. These have increasingly evolved into key performance indicator-linked structures aimed at reducing carbon emissions.
“Issuers in Thailand are not as diverse, and we must admit that there are expenses associated with green labelling. Only large local corporates will be committed in this ESG initiative, but we see it coming more and more,” he added.
