Australia
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Japan
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Philippines
Singapore
South Korea
Taiwan
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Vietnam
Global investors neglected Asia’s high-yield bond market after the trouble in the Chinese property sector began in 2021. But the market has made a remarkable recovery. As per Bloomberg data, Asia high yield outperformed both global investment grade and global high yield this year*.
“After a turbulent few years caused by the shakeout in China’s property sector, the Asia high-yield bond market has found a new equilibrium based on sound fundamentals, attractive valuations and strong returns. We think it’s time for investors to consider its growth potential and diversification benefits,” said Diwakar Vijayvergia, Portfolio Manager for Asia Fixed Income at AllianceBernstein (AB).
The portfolio manager points out that the Asia high-yield market has changed structurally over the past years, offering investors a “much-improved risk-reward profile”. For example, while China is still dominant in the JP Morgan Asia Credit Index (JACI HY), its weight has fallen significantly, and other countries, especially India, Pakistan, Thailand and the special administrative regions of Hong Kong and Macau, gained more. At a sector level, financials are now the biggest component – not real estate anymore. Sovereigns, consumer and utilities have increased as well.**
“The rebalancing of the index results in increased diversification for investors, allowing them to mitigate challenges in specific sectors or regions with opportunities in other market segments and reducing risk overall,” said Andy Suen, Co-Head of Asia Fixed Income at PineBridge Investments.
According to AB’s Vijayvergia, especially the greater exposure to India “helps to underpin the market’s outlook for positive returns.”
Both asset managers expect the outperformance of the Asian high-yield market to continue.
“In our view, the Asia high-yield market should continue to grow, despite the past 12 months’ lull in issuance,” said Vijayvergia. “Asian companies are capital constrained, and as they grow—many of them at rates likely to be several percentage points above the forecast nominal growth rates for their countries—they will need to access US dollar funding through the Asia high-yield market.”
* as of 26 July 2024
** as of 31 March 2024
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