Asian high yield corporate bond markets still appeal to income-hungry investors
16 September 2013
By Asia Asset Management
The announcement of the US Federal Reserve tapering its support of the treasury market this summer has created a fall in prices caused by diminished investor confidence. However, this has created an attractive entry point for new investors into Asia’s thriving high yield corporate bond market. Aviva Investors believes in the fundamentals of the asset class underpinned by robust corporate earnings in Asia, higher returns and lower corporate high yield default rates as compared to the global corporate high yield average.
In terms of annualised returns, Asian high yield corporate bonds were the best performing fixed income asset class since 2005 in spite of the global financial crisis of 2008 and the Chinese bear market of 2011. The Asian high yield market has trebled in size within three years and is predicted to do the same again by 2017 and although returns from Asian high yield may have passed their cyclical peak, corporate credit fundamentals in Asia remain robust. So much so that earlier this year the ratings agency Moody’s slashed its forecast default rate for the region from 5% to 2%.
Tim Jagger, lead portfolio manager, Asian high yield at Aviva commented: “Asian high yield corporate bonds are an attractive asset class for income-hungry investors, particularly as their historically low correlation with market interest rates means they are largely insulated from rising government bond yields. Fundamentals are robust and valuations attractive, hence making this an opportune time to invest or diversify in to Asian high yield corporate bonds.”
He added: “Asia has seen almost a decade of sustained economic growth, with regulatory and cultural changes, leading to the transformation of the Asian bond market. Local institutional demand already outstrips that of overseas investors by almost two to one, helping to support strong levels of new issuance. This has helped to extend debt maturities and lessen refinancing risks while adding greater maturity, transparency and depth to a market that encompasses 13 Asian economies.”
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