Asian debt is expected to outperform developed market bonds in 2015, thanks to healthy corporate credit dynamics, supportive global liquidity, stable economic and political environments and investors’ demand for yield.
Joep Huntjens, Head of Asian Debt at ING IM, says: “Although the anticipated rise in US interest rates may present a challenge for Asian bonds, the Federal Reserve is still only likely to remove its zero-rate monetary policy gradually. Furthermore, the impact of this will be outweighed by the spread cushion offered by Asian credit/high yield and the additional yield offered by the region’s local currency bonds.”
ING Investment Management anticipates Asian credit, including USD-denominated, High yield and Local Currency bonds, to deliver a total return potentially as high as 8.6% in 2015, although the base case is between 2.0 to 4.0%. Asian high yield could be as high as 11.4%, with the base case between 5.3% and 7.3%.
Huntjens believes Emerging Asia is once again set to generate the fastest rate of global growth with the region’s largest economies China, India and Indonesia set to continue economic reforms. Lower oil and commodity prices will result in better external balances and lower inflation for most Asian economies and will afford policymakers a greater degree of freedom to enact expansionary policies.
“The key risk to Asian local bonds comes from currency performance versus the greenback. Aggressive central bank policies aimed at stocking growth and warding off disinflation in Japan, Europe and elsewhere are likely to help the dollar strengthen,” he says. “However, performance is relative, and versus other regional EM currencies, such as Latin America, Asia should outperform given its respectively lower average volatility.”
