The summer holidays are around the corner and it may be time to plan for an investment that you can make in yourself, i.e. travel. Traveling may be a fruitful experience as you can learn new things along the way while enjoying the sights and sounds.
Similarly, investing in a well-chosen and diversified fixed income portfolio1 could also prove fruitful as we embark on an investment journey to uncover the hidden gems in Asian bonds.
Chinese onshore bonds have been a well-traveled road. The onshore market gained 3.4%2 in US dollar terms this year as of 27 March 2019, following a return of 1.7%2 in 2018, on the back of a more accommodative Chinese monetary policy stance and positive sentiment from the on-going trade talks with the US at that time.
With China likely to maintain a dovish bias, our Global Fixed Income, Currency & Commodities (GFICC) team believes that onshore and offshore bonds1 have the potential to continue to perform well with the limited correlation to other bond markets as well as their pending inclusion into influential global bond indices.
The US Federal Reserve’s (the Fed) shift has opened up additional investment options in the rest of Asia, which is a vibrant region with dynamic opportunities that are perhaps little known to some investors.
According to a World Economic Forum report3, China is expected to account for a third of global economic growth in 2019 while the rest of Asia is expected to take a 30% share - all the more reason for investors to consider the other parts of Asia.
We see opportunities emerging from Thailand in terms of lower-yielding bonds as well as Indonesia and India (high-yield bonds4). And we believe the current investment environment favours high-yield bonds, supported by the following themes1:
- The Fed’s pivot has offered relief to the region’s central banks. On a stand-alone basis, most Asian economies experienced benign inflation and constrained growth last year due to higher US interest rates and persistent global trade tensions.
- With the value creation witnessed in 2018 and the Fed’s pivot, current account deficit countries will benefit from some alleviation of external pressures and policy easing to support the local economies. In particular, we find Indonesia, the Philippines and Indian local bonds attractive, with potential of currency appreciation if there is broad US dollar weakness.
Perhaps it may now be timely for investors to discover these destinations and uncover the hidden gems in these Asian bonds based on investors' risk appetite.