Asia’s dollar bond market is ending 2018 logging its worst performance since 2013. Fund managers, however, believe that strong fundamentals in many sectors and expectations of support from policy makers in several countries could mean certain areas of the market yielding value in 2019. Any additional credit easing by the Chinese government, for instance, could reduce the funding pressures the nation’s borrowers currently face. The region’s stable macroeconomic and corporate fundamentals are amongst the reasons investors find its bonds appealing, especially after big sell-offs following global trade tensions and rate hikes by the Federal Reserve.
Eastspring Investment is of the view that the top picks for the Asian dollar bond market are in the Chinese asset management company industry and defaults are likely to be limited to marginal players in some sectors. Nikko Asset Management is overweight on subordinated bank debt in countries with strong banking systems such as Singapore and Hong Kong. They also see more potential for short-dated property bonds than for industrials within the China high-yield space. Manulife Asset Management agrees that Asian high-yield debt suffered a larger correction as compared to investment grade credits and prefers Chinese names as they see a slight easing bias in China due to trade pressures and to offset deleveraging policies. Loomims Sayles is skeptical on the Chinese industrial space but sees opportunities in Chinese property bonds and Indonesian high-yield, as well as in quality Indonesian corporates and quasi-sovereigns. They also like Indian issuers such as those in clean energy companies. UBS Global Wealth Management favours short-dated high-yield Chinese property bonds, bank tier 2 debt and certain Chinese state-owned enterprises.
Nevertheless, investors highlight some risks and concerns to be the possibility of increased protectionism. Elections in Indonesia and India in 2019 are also in focus and have the potential to unnerve Asia credit markets if incumbent leaders do not win as expected.