Fixed income strategy:
Asia has distinguished itself as a quality, standalone market worthy its own strategic asset allocation
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
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
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.
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.