HONG KONG -- Bond investors looking to Asia should favor issues from Taiwan and Singapore, as both markets are likely to be supported by strengthening currencies, a BEA Union fund executive said Monday.

But Indian and Philippine debt markets should be approached with caution, given the risk that authorities in both countries fall behind the curve in tackling inflation, added Henry Wong, head of fixed income for the firm, which manages about $2.1 billion.

The Hong Kong-based fund manager also favors the debt markets of Hong Kong and Malaysia, but believes that given the risk of central bank tightening, investors are best off buying short-term issues and avoiding the long end of the yield curve.

"We are now having an inflation problem as a whole. That is why, initially, we will be more concentrated or focused on the short-dated scenario," he told Reuters.

"We favor those more developed countries because they are able to tackle this inflation problem."

Wong, who helps manage about $450 million, said investors should also favor the debt of Asian energy and telecom firms, which are more likely to be supported by steady cash flows, while avoiding the bonds of exporters vulnerable to the slowdown in global economic growth.

RISK OF INDIA DOWNGRADES

The fund manager made the comments as the firm, which is owned by Bank of East Asia and Germany's Union Asset Management Holding AG, prepared to launch the BEA Asian Bond and Currency Fund in Hong Kong and mainland China.

The firm is targeting a $50-million launch for the fund, and is looking for about 60 percent of assets to come from mainland Chinese savers investing through the country's Qualified Domestic Institutional Investor program.

The former head of fixed income for the Asian arm of BNP Paribas Asset Management said a major challenge for the Philippines was the rising food and energy costs.

The country gets almost all of its crude from abroad and is the world's biggest rice importer. Its peso currency slid by over 6.0 percent this year, adding to the inflationary impact of rising import prices.

With India, a recent favorite of foreign investors, Wong is concerned about the ability of the country's ruling coalition to cope with the turnaround in the country's economic fortunes.

Analysts say India's investment-grade foreign debt rating is in danger of being cut back to junk status as slowing economic growth, rising inflation and growing debt wreak havoc on the country's finances.

This month, Standard & Poor's said the rising cost of subsidies, debt write-offs and public sector wage rises had increased the risk of a downgrade of India's BBB-minus rating, the lowest investment-grade rating.

NO FAN OF WON

In currency markets, Wong likes both Singapore and Taiwan, which he thinks will benefit from its improving relations with mainland China.

But he is bearish about the won, even after South Korean authorities aggressively sold dollars this month to support it. This was a stark shift away from a policy early this year of holding down the currency to narrow the current account deficit.

"The intervention gave me a signal ... the government may be losing their direction, because initially they didn't want to have a strong won because they believed that it was going to hurt the export sector. But now they think inflation is a concern," he said.

The South Korean won has depreciated by 7.0 percent this year and at its lowest had fallen by as much as 11.5 percent.

Wong noted that across Asia, credit spreads have been widening to reflect inflation and other risks.

The iTRAXX Asia ex-Japan high-yield index, a key measure of risk aversion, is currently at around 530/537 basis points. Although it is well under the record 650 bps it struck in March, it is much higher than the 330 bps level at the beginning of the year.

The fund manager said that spreads were in a consolidation phase and would likely take their direction from the United States and Europe. But he is pessimistic that the credit market woes seen there will ease anytime soon.

"I don't have a crystal ball, but to me this is going to be a very painful and very long consolidation. It may take years for people to get through," he said.