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Fixed income strategy:


Asian Fixed Income

Asia has distinguished itself as a quality, standalone market worthy its own strategic asset allocation

Asian fixed income has a relatively low default rate

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Is Indonesia attractive from a rates perspective?

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What are the opportunities for investors right now?

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Asian fixed income has a relatively low default rate

 

North Asian economies have demonstrated better COVID-19 containment measures relative to the rest of the world, putting the region in an advantageous position for recovery as vaccines roll out globally. According to Moody’s, the default rate for Asian high-yield (HY) corporate bonds is expected to be 3.6% at the end of 2021, compared to 5.2% for its global counterparts. With expert bottom-up credit selection, we believe Asian bonds offer compelling opportunities.

 

Asia Pacific and global HY bond default rate1

Default rate
Moblie_AP PEIT

Is Indonesia attractive from a rates perspective?

 

Indonesia’s macroeconomic fundamentals remain largely intact. To boost economic growth and maintain confidence in the country’s credit markets, the Indonesian government and Bank Indonesia have released unprecedented levels of stimulus. At the sovereign level, its current credit ratings provide ample buffer dropping below investment grade. Indonesia’s 10-year government bond offers yields of around 6%, standing out in an environment of negative yields. Overall, we believe Indonesia demonstrates credit rating resilience and offers relatively attractive yields compared to other countries.

  

10-year government bond yield in global context2

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Moblie_ATRF

What are the opportunities for investors right now?

 

Going forward, we expect Asian hard and local currency bond markets to be supported by sound fundamentals. Within the Asian hard currency bond market, we favour Asian corporate bonds with short duration and relatively high carry.

Furthermore, we favour SOEs and quasi-sovereign entities, as they enjoy access to diversified funding streams. We are also positive on China, and expect the economy to continue its broad-based recovery in 2021.

In the Asian local currency bond market, we favour the onshore China government bonds, given its high quality and attractive yield pick up against US Treasuries.

 

 

 

For more details, please contact your Manulife Financial Planning Manager or bank relationship manager.

 

Sources:

1. Moody’s Investors Service, as of 31 Demcember 2020. Projections or other forward-looking statements regarding future events, targets, management discipline or other expectations are only current as of the date indicated. There is no assurance that such events will occur, and if they were to occur, the result may be significantly different than that shown here.

2. Manulife Investment Management, Bloomberg, as of 31 January 2021.

 

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