UPDATE 1-PIMCO: Indonesian debt may be investment-grade in 3 yrs

* A-rated quasi-sovereign S.Korea bonds offer value

* PIMCO positive on emerging market FX

HONG KONG, Oct 23 - Indonesia's sovereign debt may be rated investment-grade in three to five years as long as government policies focus on supporting long-term growth, said Chia-Liang Lian, a fund manager with PIMCO, in a note on Friday.

In addition, A-rated bonds issued by quasi-sovereign South Korean entities offer value, said Chia-Liang, emerging markets portfolio manager with the fund.

"Selected high-yield corporate credits across the region that stand to benefit from the secular rise of China, notably the commodity players, present interesting opportunities," he said.

Chia-Liang added that emerging Asian currencies should gain "significantly" as the U.S. dollar declines.

Indonesia has been a particularly popular investment in Asia, thanks to its large proportion of domestic spending relative to gross domestic product, population dynamics and relatively stable political leadership.

Foreign investment in local currency government debt was 18 percent of outstanding debt as of October 20, compared with 16 percent at the end of 2007, according to the debt management office.

Indeed, the spread of Indonesia's benchmark 10-year dollar bond <ID041537523=RRPS> over Treasuries has narrowed more than 700 basis points since March, and the rupiah has strengthened 14 percent against the U.S. dollar.

Earlier this year, during the brunt of the credit crisis fallout, PIMCO had been cutting its exposure to Asia. However, by March, the fund manager was loading up on bonds from Korea, Philippines and Indonesia.

PIMCO, which is owned by Germany's Allianz, had $841 billion in global assets under management as of June 2009.