Asian bonds seen as good recovery play
Global trade frictions are back in the spotlight, but Asia’s developing-market bonds will hold up well as the region leads the way in recovering from the coronavirus crisis, according to money managers.
As Asia emerges from a lockdown, consumption and investments are set to fire up again, reviving economies that bore the earliest brunt of the pandemic. South Korean debt and Thai securities are among those primed to do well.
Developing Asian bonds are at a crossroad after their biggest monthly gain in almost a year, with fresh trade tensions threatening to undercut a rebound in exports. From China’s suspension of Australian beef imports to a US ban on investments in Chinese stocks, recent headlines are reviving concerns of the protectionism that has dogged markets for two years.
Asia’s “economic disruption is going to be easier to fix, getting people back to work is going to be easier”, said Paul McNamara, a money manager at GAM Investments in London. “We’re quite positive on Asia just because we don’t think the world’s really realised just how much better Asia has done through this.”
Asian bonds have fallen less than 1% this year, compared with a 5.8% decline in broader emerging-market debt, Bloomberg Barclays indices show. Philippine and Chinese notes have outperformed Asian peers so far in 2020.
“Emerging bonds in the Asian region are particularly cheap,” said Hiroshi Yokotani, managing director and portfolio strategist for fixed income and currencies in Tokyo at State Street Global Advisors. “South Korea, Singapore and Taiwan bonds, to some extent, are attractive as these countries are prone to being affected by the IT cycle which seems to have hit bottom.”
Policy support has been crucial. Bank Indonesia purchased bonds directly from the government, while the Reserve Bank of India snapped up debt securities in the secondary market. China’s central bank has also pledged “more powerful” policies.
“We remain quite constructive on EM Asian bonds and have increased our duration positions over the past several weeks,” said Prashant Singh, senior emerging-market debt portfolio manager at Neuberger Berman. “Our preferred positions have been in markets where we still see scope for further monetary easing and where the reliance on external financing is relatively lower — like South Korea, Thailand and Malaysia.”