Asia fixed income: a stand-out market

Hayden Briscoe, Head of Fixed Income, Asia Pacific gives his outlook for Asia fixed income markets

11 ene 2021

Asia fixed income: a stand-out market – key takeaways

  • Both Asia High Yield (AHY) and Investment Grade (AIG) fixed income categories offer attractive yields and duration compared to the US and EU;
  • High spreads in both the AHY and AIG categories will likely close in the coming 12 months;
  • Recent policy changes in the China property sector have opened up a rerating process, which is a major opportunity for bond investors.

Both Asia High Yield (AHY) and Investment Grade (AIG) fixed income categories offer attractive yields and duration compared to the US and EU because we haven’t had a central bank buying paper in the market in Asia, which explains why we haven’t really had the catch-up phase seen in Europe and the US.

Yield/Duration ratio for high yield (HY) and investment grade (IG) bonds

Source: UBS Asset Management, November 2020

From a historical perspective, spreads in both the AHY and AIG categories are high, and particularly for AHY, and we expect that those gaps will close in the coming 12 months, particularly if growth starts to slow and further rate cuts come toward the end of the first half of 1H21.

High Yield Credit Market: Spreads

Source: UBS Asset Management, November 2020

Investment Grade Credit Market: Spreads

Source: UBS Asset Management, November 2020

Turning to China’s property sector, a key one in the Asia high yield universe, there are a series of supportive trends for the sector, including industry consolidation, steady price appreciation, as well as growing sales.

Continuing on the property theme, recent policy changes offer a key opportunity.

The Chinese government’s ‘three red lines’ policy approach subjects developers to lower balance sheet leverage ratios and limits non-compliant companies from expanding their balance sheets.

We believe that this marks the start of a major rerating, which opens up big opportunities for active investors in the sector.


Read More

 

Asset Management services and solutions in your location

Please select your region

 

For further information on what we can offer you, please get in touch.

Important legal information

To proceed, please confirm that you are a professional / qualified / institutional client and investor.

Views and opinions expressed are presented for informational purposes only and are a reflection of UBS Asset Management’s best judgment at the time a report or other content was compiled. UBS specifically prohibits the redistribution or reproduction of this material in whole or in part without the prior written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in this respect. The information and opinions contained in the content of this webpage have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith but no responsibility is accepted for any errors or omissions. All such information and opinions are subject to change without notice but any obligation to update or alter forward-looking statement as a result of new information, future events, or otherwise is disclaimed. Source for all data/charts, if not stated otherwise: UBS Asset Management.
Any market or investment views expressed are not intended to be investment research. Materials have not been prepared to address requirements designed to promote the independence of investment research and are not subject to any prohibition on dealing ahead of the dissemination of investment research. The information contained in this webpage does not constitute a distribution, nor should it be considered a recommendation to purchase or sell any particular security or fund. The materials and content provided will not constitute investment advice and should not be relied upon as the basis for investment decisions. As individual situations may differ, clients should seek independent professional tax, legal, accounting or other specialist advisors as to the legal and tax implication of investing. Plan fiduciaries should determine whether an investment program is prudent in light of a plan's own circumstances and overall portfolio. A number of the comments in the content of this webpage are considered forward-looking statements. Actual future results, however, may vary materially. Past performance is no guarantee of future results. Potential for profit is accompanied by possibility of loss. 
© UBS 2021 The key symbol and UBS are among the registered and unregistered trademarks of UBS.

Reset