A recovery in Asian bond markets is underway, according to Schroders' Rajeev De Mello.
‘Overall, our view is that we are seeing a recovery in Asian bond markets,’ the head of Asian fixed income said in a commentary note.
‘It is broadly being led by the ongoing economic recovery in the US, and we are seeing Asian exports slowly pick up.'
De Mello believes they have not yet reached anything comparable to a normal recovery, but growth in the US, Europe and Japan is currently still far from normal, he added.
‘Once we see a more sustained recovery in US capital expenditure, we think Asian exports will really begin to accelerate, given how highly Asia is leveraged to the global cycle.
'There are already some signs of improvement, but these hopes have been dashed before, so we are staying cautiously optimistic,’ he said.
In addition, after bouts of rate increases across Asia in the aftermath of the global financial crisis, De Mello noted that the region is finally at a point where rate cuts could begin and 'this is where we believe value can be found,' he said.
‘This loosening is positive for bonds, and we see similar opportunities in India and Indonesia.'
However, it's a different situation for Hong Kong, Taiwan and Singapore. ‘The concern we have is that when interest rates eventually start rising in the US, there will be a negative impact on these bond markets.
'With bond yields in Hong Kong, Taiwan and Singapore already close to or below those in the developed world, there is very little appeal for holding these bonds purely for their yields,' De Mello said in the commentary.