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Australia’s credit market is often misunderstood, with persistent myths about its size, liquidity, and risk. Contrary to belief, the market is deep and diverse, highlights Australian investment manager QIC in a recent insight.
„Australian investment grade corporate credit (AUD credit) has changed significantly over recent years, developing into a much larger market that offers investors greater diversification and deeper liquidity,” says the asset manager.
QIC is debunking the following five myths.
The AUD credit market is too small
Reality: While smaller than global markets, AUD credit has nearly doubled in size over the last 10 years.
Exposure to AUD credit doubles up on ASX-listed equity beta
Reality: The majority of the market comprises either foreign issuers or defensive Australian issuers that are not listed.
USD credit, with a much deeper market, offers a better investment opportunity
Reality: AUD credit currently offers attractive returns, with higher spreads than USD investment-grade credit, lower volatility, and stronger average credit ratings.
AUD credit lacks liquidity
Reality: While not as large as the US market, the liquidity of the AUD credit market has improved significantly over recent years.
Active management of credit doesn’t add any value
Reality: Skilled managers can enhance returns and manage risk by leveraging relative value opportunities, active security selection, and rigorous credit analysis.
Moreover, the addition of Australian corporate bonds to the USD-denominated JPMorgan Asia Pacific Credit Index (JACI Asia Pacific) has increased global investor awareness of AUD credit, driving stronger demand, especially from Asia. And as global interest rates stabilise, demand for high-quality Australian credit is likely to grow.
