Asian fixed income products could see continued inflows in 2017 after gaining traction this year, a fixed income specialist has said.
‘Asian fixed income instruments have had a good run this year,’ Gordon Ip, investment director for fixed income investments at Value Partners told Citywire Asia.
‘While valuations are not exactly cheap, we believe the market will continue to be supported by strong technicals going into next year and that will encourage more issuance and that will expand the size of the Asian credit market.’
Ip said investors could consider Asian high yield bonds for better yield, especially as credit spreads globally have tightened and global yields have fallen.
He also noted that a significant level of money from Chinese investors remains on the sidelines for now, waiting for the right opportunity and time to invest.
‘After the RMB depreciation last year, there has been an acceleration in outflows from China. The money has gone offshore and is waiting to be deployed,’ he said.
‘From our discussions with investors, it seems that they are not seeking to make massive gains; instead, they are aiming to ensure preservation of capital. That objective is likely to ensure that a lot of money flowing into fixed income.’
Chinese credit is likely to benefit, according to Ip. ‘The Chinese tend to seek familiar Chinese names in US denominated assets. Money will flow into Chinese IG and then HY; after that, it could flow into Asian IG (ex-China) and Asian HY.’
‘They could start with triple B rated names, then move into double B and then selectively move into single B issuers.’
Importantly, the money hasn’t gone out of Asia and that is a differentiating factor for Asian credit compared with other markets, added Ip.
Ip believes yield chasing will remain a key investment theme in 2017 as interest rates stay low globally, supported by negative interest rates and a slow and gradual US rate hike.
With a shallow trajectory, the impact of US rate hike on bonds will be limited and the over-pessimism on bonds is unjustified.
‘Against this backdrop, we see better risk -adjusted value in high yielding assets, including Asian high yield bonds. In particular, we are watching out for opportunities in lower -rated credits, under-researched credits, as well as opportunities driven by special situation and events.'
Asian high yield bonds have outperformed Asian equities in the past year as investors chased for yields amid a low-rate environment, according to the fund house’s fixed income team.