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Emerging markets: Increasing exposure to Asian credit

Chinese_indicesInvestment markets performed well in 2019, with global equities returning more than 20% and a positive picture for fixed income, with global bonds and credit returning around 10% (as of October 31, 2019).

The figures are even more impressive when turbulence from a global economic slowdown and major political developments, such as a record number of elections in G20 countries since 1958, are considered.

But 2019 closed with low yields across bond markets, so where are investors gazing for good opportunities?

According to HSBC’s latest Asian Bond Investor Survey, 96.6% of global investors are planning to increase their exposure to the Asian credit market over the coming year and infrastructure and utilities (95.5%), transport and logistics (75.3%) and technology and telecoms (86%) are all identified as popular sectors.

In the Asian bond market, current price fundamentals still reflect good growth opportunities for investors. “Asia will have a better growth outlook with a relatively stable exchange rate and inflation – that’s what the bond market is telling us,” says Steve Lee, head of China and Taiwan at HSBC Global Asset Management (GAM), adding the Asia high-yield story presents a significant yield pick-up for investors compared to high-yield elsewhere.

“Asia high yield bonds also have a much shorter duration compared to other developed market high yield bonds,” says Lee. “Clearly, these are the areas attracting investors to look at the Asia credit market overall and especially the Asia high yield market.”

When it comes to Asia investment grades versus their US counterparts, the yield and credit spread is almost similar, meaning there is no clear advantage. On the other hand, the high yield space offers significant yield difference and credit spread and a shorter duration, prompting serious consideration from an overall Asia credit perspective, according to Lee.

Read the full article here: Emerging markets: Dining at a global bond buffet

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