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Investing in Asia’s high-yield bonds is proving to be an enticing prospect in 2023, fueled by a resurgence in the region’s fixed-income markets and the potential of this asset class to deliver superior returns when compared to its global peers.
Over the period from December 2000 to December 2022, Asian high-yield bonds provided better returns than all other bond sectors, according to an analysis by Eastspring Investments. The asset class also delivered higher returns compared to global, US, and Asia ex-Japan equities during the same period.
And after a turbulent 2021 and most of 2022, Asian high-yield bonds experienced a significant rebound in November last year. Looking forward, the outlook for Asian high yield in 2023 remains optimistic, given the region’s economic resilience and the distinct characteristics of this asset class, as per Manulife Investment Management.
“Asia’s high yield (HY) market has felt the prolonged downturn in China’s property sector deeply. While sentiment has not yet fully recovered, we think the current market dislocation offers disciplined credit selectors scope to uncover attractive risk/reward opportunities,” writes Andy Suen, Co-Head of Asia ex-Japan Fixed Income at PineBridge Investments.
Shorter duration profile, decelerating default rates favour Asian high-yield bonds
Amidst the promising outlook for Asian high-yield bonds in 2023, several other characteristics of this asset class add to its appeal as an attractive investment option.
Asian high-yield bonds provide investors with a shorter duration profile and higher yield-to-maturity compared to their global counterparts, positioning them as an alluring choice for yield-seeking investors.
“Asian high yield currently boasts a shorter duration (2.69 years) compared to high-yield in the US (3.92 years) and emerging markets (4.38 years). It also potentially offers yield pick-up for investors, as the region has, on average, the highest bond yield levels since 2011,” writes Murray Collis, Chief Investment Officer, Fixed Income at Manulife IM.
Furthermore, after facing challenges in 2022 with the highest default rate in over a decade at 16.5%, Asian high-yield bonds are projected to witness a significant deceleration in default rates for 2023, expected to be around 4.1%, according to JP Morgan.
“We believe that the default rate had peaked in 2022…With current valuations pricing in a lower default rate this year, a larger-than-expected fall in the default rate in 2023 could be a catalyst for the sector,” informs Wai Mei Leong, Portfolio Manager, Fixed Income at Eastspring Investments.
Experts also emphasise that Asia high-yield bonds are aided by stable credit fundamentals, tight supply conditions, and the resurgence of China’s property sector in late 2022 and early 2023, among other factors.
“A successful bond restructuring in China’s property sector could be a further catalyst. Meanwhile, attractive valuations raise the prospects of compelling total returns for long-term investors,” as per Eastspring Investments.
How to invest in Asian high-yield bonds?
Listed below are a few funds that are open to investors looking to invest in Asian high-yield bonds.
Eastspring Investments – Asian High Yield Bond Fund – A
Founded in 2012, this fund allocates its investments to a diversified portfolio primarily comprising high-yield fixed-income or debt securities issued by Asian entities or their subsidiaries. The fund primarily holds securities denominated in US dollars and various Asian currencies, with its primary objective being to optimise total returns by investing predominantly in debt securities rated below the rating of BBB-.
The fund has total assets under management of $207.3 mn.* The Eastspring Investments – Asian High Yield Bond Fund is benchmarked against the JP Morgan JACI Non-Investment Grade Index. It has an annual management fee of 1% and an initial charge of upto 3%. It has risen by 1.4% year-to-date*. Since its inception, the fund has witnessed a fall in returns by 1.4% while the benchmark has risen by 2.5%.
The fund’s top five major holdings consist of Chinese asset management company Huarong Finance 2019 Co Ltd 4.25% 31-Dec-2079 (3%), Chinese finance and insurance firm Central Plaza Development Ltd 3.85% 14-Jul-2025 (1.8%), the Singaporean energy and natural resources company Medco Laurel Tree Pte Ltd 6.95% 12-Nov-2028 (1.7%), Sands China Ltd 5.9% 8-Aug-2028 (1.6%), and Singaporean real estate developer Modernland Overseas Pte Ltd 1% 30-Apr-2027 (1.3%).
In terms of sectors*, the fund has significant investments in home construction (15.4%), gaming (14.9%), other financial institutions (10.5%), foreign agencies (8.2%), and treasury (7.6%). As for geographical distribution, its major holdings are in China (27.1%), India (20.2%), Macau (15.9%), Indonesia (8.5%), and Hong Kong (6.3%).*
The fund is managed by Wai Mei Leong, a portfolio manager who has been working at Eastspring since 2007.
Manulife Global Fund – Asian High Yield Fund AA Acc
Launched in 2019, the Manulife Global Fund – Asian High Yield Fund AA Acc aims for maximum total returns by pursuing a blend of income generation and capital appreciation. The fund’s primary focus is on debt securities listed or traded in Asia or issued by corporations, governments, agencies, and supra-nationals with significant business interests in Asia, including emerging markets. The fund has the JPMorgan Asia Credit non-Investment Grade index as benchmark.
With total assets worth $97.16 mn, the fund imposes a management fee of 1.25% and an initial sales charge of up to 5%. The fund’s management team comprises of experienced portfolio managers, namely Jimond Wong, Chris Lam, and Endre Pedersen, each with a career spanning around two decades.
Over the past three years, the fund has experienced a decline in returns of 5.93%. Furthermore, the fund has seen a year-to-date reduction of 7.04%*. Since its inception, the Manulife fund has encountered a decrease in returns by 5.59%.
The top 5 holdings of the fund include the Hong Kong-based health and nutrition company Health & Happiness H&h International Holdings Ltd 13.5% 26-Jun-2026 (3.22%), Utilities and Power firm Greenko Wind Projects Mauritius Ltd 5.5% 04-Jun-2025 (8.40%), West China Cement Ltd 4.95% 08-Jul-2026 (2.44%), Indian financial services company Shriram Finance Ltd 4.15% 18-Jul-2025 (2.18%) and Standard Chartered Plc 7.75% perpetual (2.10%).*
In terms of sector allocation*, the fund has a significant portion of its assets invested in real estate (18.77%), consumer cyclical industries (15.77%), and banks (13.02%), accounting for over 50% of the total allocation. Energy (9.88%) and utilities (7.51%) are also among the top 5 sector holdings.
Like the Eastspring fund, Manulife’s major focus lies in China (39.88%) and India (16.83%), with Macau (11.71%) as the third highest allocation in the portfolio, followed by Indonesia (9.66%) and the US (7.57%)*.
PineBridge Asian High Yield Total Return Bond Fund- A
Launched in 2022, this fund aims to achieve maximum total return by primarily investing in high-yield, sub-investment grade debt securities issued by entities domiciled in or with a predominant economic presence in the Asia Pacific Region.
The PineBridge fund has total assets under management of $192.5 mn and is benchmarked against the JP Morgan Asia Credit Index (JACI). Among the funds listed here, this particular fund has the highest management fee of 1.50%. Along with that, it levies an ongoing charge of 1.52%. The lead managers of the fund are Andy Suen and Omar Slim. Both have around 40 years of experience between them.
The fund’s top five holdings* include Celestial Miles 5.75% (3.4%), Indian Network I2i Ltd 5.65% (3.3%), Singapore-based real estate developer Yanlord Land Hk 6.8% 27-Feb-2024 (3.2%), Indonesian electric services company Indika Energy 8.25% Iv 22-Oct-2025(3%), and Softbank Grp Cor 6% (2.9%).*
Country-wise, the highest allocation is for China (26.6%), India (19.4%), Macau (13.5%), Indonesia (10.1%), and Australia (8.3%).* Sector-wise, real estate (20.7%), consumer (16.6%) and financial (13.6%) make 50% of the allocation, followed by utilities (13.2%) and TMT (9%).*
* as of June 30, 2023
