Australia
China
India
Indonesia
Japan
Malaysia
Philippines
Singapore
South Korea
Taiwan
Thailand
Vietnam
As the global economic scenario has turned uncertain, investors are looking to protect their portfolios from heightened market volatility by gaining exposure to economies with strong growth prospects. Investment experts suggest that Asia’s credit markets stay relatively resilient. According to Marcella Chow, Global Market Strategist at JP Morgan, this is because Asian economies offer a larger growth alpha and lower inflation when compared with developed markets.
Asia’s credit market includes a diverse mix of countries and issuer types, emphasising strong credit quality. Asian corporate bonds focus on companies’ strong long-term business prospects and a sound management team.
According to T. Rowe Price, the Asian credit market offers a relatively stable return profile, acting as a lower-volatility diversification tool. The asset manager also stated that Asia credit has a comparatively lower duration (interest-rate risk) than US and European investment grade bonds, thus offering higher yields on shorter-dated issues. Blackrock reiterates that Asian credit continues to offer higher yields than global peers.
In terms of risks, since 2022, Asian investment-grade corporates witnessed slight leverage pressures. However, the interest coverage ratio stays aligned with the long-term average, as per Chow. She affirms, “As economic activity further picks up, the default rate will likely stay low for the rest of this year, a big improvement from the double-digit default rate in 2022.”
As for credit ratings, JP Morgan indicates lower downgrade risk as stable sovereign ratings would help government-related entities to maintain steady ratings, government related entities usually account for nearly 60% of the JP Morgan Asia Credit Index (JACI).
What options do investors have?
As the prospects of Asia credit bonds look promising, we are exploring two investment funds: the passive iShares J.P. Morgan USD Asia Credit Bond Exchange Traded Fund (ETF) and the actively managed Asia Credit Bond Fund by T. Rowe Price.
iShares J.P. Morgan USD Asia Credit Bond ETF
Launched in May 2011, iShares J.P. Morgan USD Asia Credit Bond ETF tracks the investment results of the J.P. Morgan Asia Credit Index – Core that represents USD-denominated Asian bond issuances. Managed by BlackRock’s ETF arm, this iShares exchange traded fund offers diversified exposure to debt instruments issued by sovereigns, quasi-sovereigns as well as corporates in Asia ex Japan region.
The ETF offers a broad exposure to various types of debt instruments, such as fixed rate, floating rate, etc. 40.63% of the fund’s underlying securities are BBB-rated, while 23.23% are A-rated.*
The iShares J.P. Morgan USD Asia Credit Bond ETF has assets under management (AUM) worth $67.892 mn. The number of holdings in the ETF is 348, and it has 7,448,232 units outstanding. The top holdings of the ETF include the Republic of Philippines (7.56%), the Republic of Indonesia (4.29%), Petronas Capital Ltd (3.46%), TSMC Global Ltd (3.40%), and Standard Chartered Plc (2.68%).*
In terms of geography, South Korea contributes 11.03% while Indonesia contributes 10.36% to the portfolio. The share of India and the Philippines stands at 9.96% and 9.73%, respectively, followed by China (9.63%).*
About 19.98% of the fund components have a maturity of 3-5 years, while 16.19% have a duration of 5-7 years.*
iShares J.P. Morgan USD Asia Credit Bond ETF generated a 1-year return of 9.83%, wherein the management fee stands at 0.20%.**
T. Rowe Price Asia Credit Bond Fund
T. Rowe Price Asia Credit Bond Fund, launched in April 2018, is an actively managed fund that invests mainly in a diversified portfolio of transferable US dollar-denominated fixed-income securities of issuers that are native to or conducting the predominant part of their economic activity, in Asian countries excluding Japan.
The fund is managed by the two portfolio managers Sheldon Chan and Leonard Kwan. Chan has investment management experience of 18 years, while Kwan brings in a total experience of 26 years.
The fund has AUM of $25.5 mn. It has a total of 135 holdings. In terms of geography, China (15.16%) and Indonesia (14.77%) make up about 30% of the portfolio, followed by South Korea (12.69%), India (10.25%) and Hong Kong (9.37%).**
The top 5 holdings of the fund are the Republic of Indonesia (3.00%), Development Bank of Philippines (2.40%), South Korea’s Shinhan Bank (2.19%), Hongkong Land Finance Cayman Islands (2.11%), and Democratic Socialist Republic of Sri Lanka (2.04%).**
41.45% of the fund’s components are BBB-rated. T. Rowe Price Asia Credit Bond Fund garnered a return of 9.77% over the past year, compared to 8.58% of the benchmark. It has an ongoing charge of 0.82% and a maximum annual charge of 0.65%.**
* as of 21 November 2023
** as of 31 October 2023
*** as of 30 September 2023
