Yielding to Asian Bonds in 2020


The case for investors to make an allocation to Asian local currency bonds in their portfolios remains compelling, amidst the persistent phenomenon of negative yielding debt globally.

With interest rates in the developed world expected to stay low and the phenomenon of negative yielding debt not going away anytime soon, yield-seeking debt investors are turning their attention to regions such as Asia where fundamentals are stable, while still offering attractive yields.

Key Takeaways

  • The Asian local currency bond market is a high quality investment universe, with all nine key Asian sovereign issuers in the investment grade category.
  • Asia’s bond markets offer investors compelling nominal and real yields, against an environment of negative/low yielding debt globally.
  • Inflationary pressures remain manageable across most Asian countries, keeping real yields firmly in positive territory, allowing regional central banks some flexibility to ease.
  • Rising FX reserves provide sufficient ammunition for Asian central banks to support their currencies and moderate FX volatility during periods of capital outflows.
  • Looking ahead, duration gains will be more selective next year as compared to 2019, as the pace of interest rate easing slows.We favour selective high yielders in Asia where central banks have further room to ease.
  •  As global growth rebounds and the flight to quality premium in the US dollar fades, Asian currencies can also outperform.

Read the full article here. 


  Fullerton Investment Views 4Q 2019 


We have adopted a more positive view on risk assets, notwithstanding our caution over the successful execution of a US-China trade deal in the near term. Our positive stance stems from our expectation that global growth is likely to stabilise in the coming months, especially as both monetary and fiscal policies globally become much more accommodative. The impact of central bank easing is supportive not just for financial assets, but for real activity as well. Moreover, the market is lightly positioned and defensive; a normalisation of risk appetite would thus provide support for risk assets as investors reduce their underweight positioning.

Key Takeaways

  • We have adopted a more positive view on risk assets, notwithstanding our caution over the successful execution of a US-China trade deal in the near term.
  • We believe global growth is likely to stabilise in the coming months, especially as both monetary and fiscal policies globally become much more accommodative.
  • Equity markets with stronger earnings momentum and higher yielding fixed income assets are preferred.
  • Within the Equities space, we focus on markets and sectors where we expect more resilient earnings growth from a bottom up perspective.
  • Thematically, we expect the coming year to be an inflection point for 5G and have a structurally positive view on the Technology sector.
  • Given the strong performance of Asian credits year-to-date, the sector could take a breather into the year end, but supply dynamics remain favourable.
  • Asian high yield spreads are attractively above long-term averages and we see room for spread compression and outperformance in this space.

For a more in depth look at the market and risk asset fundamentals, read the full article here.