Asian bond market in credit cycle sweet spot, ably supported by fundamentals: AllianzGI
The outlook for Asia’s bond market in the second half of the year looks bright after these debt instruments outperformed their global peers in the first half, according to a report by Allianz Global Investors on Monday.
Bond offerings by Chinese utilities and Macau gaming companies are particularly attractive because of their low default rates and reasonable yields, the German fund manager said.
“Earnings reported by Asian [corporation] and financial institutions confirm our opinion that Asian credit is in a sweet spot of the credit cycle,” said Jenny Zeng, chief investment officer for Asia-Pacific fixed income at AllianzGI and one of the co-authors of the report.
“Importantly, the Asia high-yield default rate fell significantly to 9.1 per cent in the first half of 2024 after being in double digits since 2021. We expect the rating trajectory to remain stable and the default rate to normalise to the mid-single digit range.”
Investors are now searching for investment alternatives other than bank deposits as the market widely believes the US will start cutting its key rate as early as September.
Swiss lender UBS last week also issued a research note on investment products, including bonds, noting fixed-income products offer benefits of diversification and outperform cash over the long term.
“High-quality bonds are among the safest investments we recommend for an investor’s portfolio, as they can help preserve capital, reduce equity volatility, and stabilise portfolios,” said a report by UBS Global Wealth Management’s chief investment office.
“We continue to forecast and position for lower rates. This means deploying excess cash into high-quality corporate and government bonds … We also think bond ladders and structured investment strategies with capital preservation features can help investors manage liquidity.”
The shift to bonds could benefit Hong Kong, which is a fundraising centre for local Chinese governments and companies to raise funds via shares or bonds.
These offerings underscore China’s renewed push to internationalise its currency and strengthen the role of Hong Kong and Macau to act as offshore yuan hubs.
