It is an “attractive time to invest in private and public credit in Asia”

The Asia Pacific region ranks as the world’s second-largest credit market, as per the Bank of America. This market is younger and not as liquid as those in the U.S. and Europe, often experiencing more volatility due to ongoing structural inefficiencies, market fragmentation, and a historically concentrated issuer and passive investor base. Yet, it is these very inefficiencies, along with increasing tailwinds and market variability, that create attractive relative value opportunities for investors, a market analysis by American global investment company KKR points out.

The Asia Pacific corporate bond market, denominated in USD, stands at $1.6 tn, a fraction compared to the U.S. and European markets, which are valued at $10.3 tn and $3.5 tn, respectively. Despite its current smaller scale, the Asia Pacific dollar bond market is on an upward trajectory, adapting to changing financing needs. This growth is exemplified by the recent launch of a new U.S. dollar corporate bond index for the region, including Japan, Australia, and New Zealand, thereby broadening the scope for investment.

“We believe the expansion of the dollar-denominated corporate bond market will provide additional opportunities for investors,” asserts Brian Dillard, Head of Asia Credit at KKR.

The analysis indicates that the rationale for long-term investment in Asia Pacific credit is significantly influenced by the region’s macroeconomic evolution and complexity of the region. Even with the economic deceleration in China, the Asia Pacific region’s growth rate still outpaces that of both the U.S. and Europe by a factor of two.

“We believe lower real yields should be a positive for valuations and a risk recalibration has helped to reshape the Asia Pacific landscape, explains Dillard. “For many years, real estate issuers played an outsized role in Asia Pacific’s liquid credit markets and were the primary driver of the market’s exponential growth. However, a wave of defaults amongst Chinese real estate developers catalyzed a wide reset in asset valuations that extended beyond the property sector, dramatically shifted the composition of the market, and eroded investor confidence. In our view, the sell-off created attractive entry points for investors and compelling relative value compared to the United States and Europe.”