Portfolio Pulse: Asian Total Return Bond Fund
A pulse check on our Asian bond portfolio
A 3-minute video to explore the attractiveness of the Chinese bonds and the distinguished features of our Chinese bond strategy
In this video, Tai Hui, Chief Market Strategist Asia Pacific, discusses the latest Chinese bond market and its investment implications.
Over the past 20 years, China’s bond market has grown more than sixtyfold^ and has overtaken Japan as the second largest in the world. The launch of Bond Connect and inclusion in major indices have brought about ample opportunities for China bonds, with foreign ownership still at relatively low levels and set to benefit from the potential inflows.
The Chinese first used bonds in the 19th century*. Today, China’s bond market is the second largest in the world.^
The world’s top five bond markets (market size in USD trillion)
Different segments of China bonds come with distinct characteristics. Relatively small in size, China’s offshore bond markets have seen issuers of higher quality in general, with a forecasted default rate similar to that of Asia and lower than those of Emerging Markets and the US.
Default rates of high yield bonds# across different regions
Both onshore and offshore China bonds exhibit a lower correlation with global aggregate and developed market bonds when compared with those in Emerging Markets, while offering relatively attractive risk-adjusted returns.
In times of uncertainty, allocating to lowly or negatively correlated assets may help increase sources of diversification.
Relatively low correlation between China and global aggregate bonds
Amid rising economic risks, the US Federal Reserve has cut rates aggressively and renewed quantitative easing to help tackle ongoing uncertainties and volatility. In an environment of low or even zero interest rates, it has become more challenging for global investors to find income, making the income potential of China bonds more appealing.
China Bond yields over the past five years
China’s bond yield level looks appealing in the USD Asian credit market
J.P. MORGAN ASSET MANAGEMENT’S ASIAN FIXED INCOME TEAM
Focus on flexibility and quality
Benchmark-agnostic, the Fund invests flexibly across the onshore and offshore CNY-, CNH- and USD-denominated China bond markets. The portfolio may include bonds and debt securities issued by governments and their agencies, financial institutions as well as corporates to capture the diverse opportunities in varying market conditions.
With a focus on quality, the Fund allocates at least 50% of the portfolio in securities that are rated investment grade at the time of purchase.
Active currency management
Within a macro framework, the investment team seeks to achieve competitive total returns by combining top-down strategies and sector views with bottom-up security selection. The portfolio managers may also take active currency positions to maximise returns, offering potential advantages in foreign exchange terms.
Attractive income opportunities
The Fund offers monthly distributing “(mth)” and “(irc)” share classes, providing attractive income opportunities. It is also available in USD, HKD and RMB Hedged classes to help meet investors’ need for different currencies. (* Aim at monthly distribution. Dividend rate is not guaranteed. Distributions may be paid from capital. Refer to important information 3)