Allianz Global Investors, one of the world’s leading active asset managers, announced today the appointment of Matt Christensen as Global Head of Sustainable and Impact Investing. In this role, he will accelerate the growth of Impact Investing as part of the company’s growing private markets platform; lead the continued integration of ESG factors across AllianzGI’s existing range of public markets products, including stewardship activities; and support the development of new SRI products.
Higher yield potential and added diversification aren’t the only qualities attracting fixed-income investors to Asia. The region’s bond markets are large and growing, and reform-minded governments are providing the necessary policy support to maintain growth.
Economic growth in Asia is supported by China’s stabilising demand and the efforts of Asian central banks
Asian bonds offer attractive yield potential, particularly compared with the typically low to negative yields of bonds from more developed nations
Asian credit fundamentals remain broadly stable: companies generally have lower debt levels and are maintaining adequate cash levels on their balance sheets
Our medium-term outlook for China’s bond market remains positive thanks to policymakers’ efforts to balance growth and stability, and the trend towards more open, integrated markets
With many Asian countries focused on reforming their economies and political systems, the region offers strong potential for economic growth and investment – but without the ultra-low or even negative interest rates in effect across much of the developed world. This presents notable opportunities for investors on the hunt for income.
Four key reasons why investors should consider Asian bonds
1. Asian bonds offer valuable yield potential
A steady income stream can provide investors with a range of benefits, but sufficient income isn’t easy to find in many parts of the developed world. The total amount of bonds with negative yields is close to USD 10 trillion, according to Bloomberg. In contrast, Asian fixed-income securities – particularly US dollar-denominated bonds – can offer attractive yield potential.
Asian USD-denominated investment-grade bonds remain fairly valued, with a yield-to-maturity of 4.3% as at 30 April. (Yield-to-maturity represents the potential annual return if these bonds were purchased today and held to maturity.)
Asian USD-denominated high-yield bonds offered a yield-to-maturity of 7.5% as at 30 April – above their historical average over the last 10 years.
High yields for Asian investment-grade and high-yield bonds
5-year yields of government bonds and yield-to-maturity of Asian USD-denominated bonds (in local-currency terms)
Source: Bloomberg, J.P. Morgan, Allianz Global Investors. Data as at 30 April 2019. Based on J.P. Morgan Asia Credit Index. Asterisk denotes yield to maturity; all others are 5-year yields.
2. Asian fixed-income markets are large – and growing
Asian debt markets have grown bigger and deeper in recent years, totalling around USD 1 trillion in US dollar-denominated debt and around USD 13 trillion denominated in local currencies. The development of these markets is fuelled by the rapid growth of Asian economies on the global stage, particularly China, as well as by Asian investors putting their money to work in Asia.
3. Asian bonds can help diversify global bond portfolios
Investors who aren’t already invested in Asian bonds should note their ability to help diversify global bond portfolios. As the chart below shows, Asian USD-denominated bonds have the potential not only to help enhance returns, but to reduce portfolio risk.
Adding Asian bonds may boost yields while reducing risk
Effects of adding Asian USD-denominated bonds to a portfolio of global government bonds (10-year average return in USD per year)
Source: Bloomberg, Allianz Global Investors. Data as at 31 March 2019, based on weekly returns in USD terms. Asian USD-denominated bonds based on J.P. Morgan Asia Credit Index. Global government bonds based on FTSE World Government Bond Index (WGBI), in USD. The FTSE WGBI comprises fixed-rate, local-currency, investment-grade sovereign bonds of 20 countries.
4. Asia has a bright economic future
We have a positive overall outlook for Asia, which further supports our constructive view of Asian bonds. Growth in the region will likely remain underpinned by supportive policy measures where they are needed. This is most evident in China, where policymakers have been pumping more liquidity into the economy and making it easier to get loans. We think China’s policymakers will continue to fine-tune their policy stance to counteract potential external growth risks.
With the global growth trajectory likely to remain muted as trade tensions linger, we believe central banks globally will likely remain supportive as well, maintaining a neutral or low-interest-rate environment to help ward off a further slowdown in global growth activity. This should continue to be positive for Asian fixed income.
We expect markets to continue being volatile as they react to macroeconomic developments, but these episodes actually present opportunities for investors to find attractive valuations for fixed-income investments in which they have conviction. To help manage risks, investors should continue to pursue active investment approaches, monitoring changes in oil prices and inflation expectations – which could influence central banks’ policy trajectories – while keeping an eye on global geopolitical developments.
But as long as central banks globally keep interest rates low, we expect to see investors gravitate towards “riskier”, higher-yielding asset classes over “safer”, lower-yielding investments. This is likely to contribute to a positive overall environment for fixed-income investments in Asia. Here are our top ideas for investors to consider:
Amid the larger Asian bond universe, look for attractively priced issues – particularly US dollar-denominated bonds – to enhance yield potential.
Asian high-yield bonds may offer better value compared with the investment-grade segment; we expect interest accrual to continue to drive the performance of Asian high-yield bonds in 2019. Credit fundamentals remain broadly stable, and we don’t expect widespread systemic risk to affect this sector.
Chinese bonds are an interesting asset class. They are being included in widely used global indices, which is likely to result in large investment inflows that boost China’s onshore bond market. In addition, China’s bond market is already the third-largest in the world, and policymakers have announced tax exemptions for foreign investors that may make it even more attractive to own onshore renminbi bonds.
This is part of an ongoing series on the importance of income, featuring insights from our strategists, economists, CIOs and portfolio managers. Explore the links below for more:
Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Foreign markets may be more volatile, less liquid, less transparent and subject to less oversight, and values may fluctuate with currency exchange rates; these risks may be greater in emerging markets. Bond prices will normally decline as interest rates rise. The impact may be greater with longer-duration bonds. High-yield or “junk” bonds have lower credit ratings and involve a greater risk to principal. The market for certain securities may become illiquid, which could prevent the Fund from purchasing or selling these securities at an advantageous time or price and possibly delay redemptions of Fund shares.
Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security.
The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted.
This material has not been reviewed by any regulatory authorities. In mainland China, it is used only as supporting material to the offshore investment products offered by commercial banks under the Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations. This communication's sole purpose is to inform and does not under any circumstance constitute promotion or publicity of Allianz Global Investors products and/or services in Colombia or to Colombian residents pursuant to part 4 of Decree 2555 of 2010. This communication does not in any way aim to directly or indirectly initiate the purchase of a product or the provision of a service offered by Allianz Global Investors. Via reception of his document, each resident in Colombia acknowledges and accepts to have contacted Allianz Global Investors via their own initiative and that the communication under no circumstances does not arise from any promotional or marketing activities carried out by Allianz Global Investors. Colombian residents accept that accessing any type of social network page of Allianz Global Investors is done under their own responsibility and initiative and are aware that they may access specific information on the products and services of Allianz Global Investors. This communication is strictly private and confidential and may not be reproduced. This communication does not constitute a public offer of securities in Colombia pursuant to the public offer regulation set forth in Decree 2555 of 2010. This communication and the information provided herein should not be considered a solicitation or an offer by Allianz Global Investors or its affiliates to provide any financial products in Panama, Peru, and Uruguay.
This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors U.S. LLC, an investment adviser registered with the U.S. Securities and Exchange Commission; Allianz Global Investors Distributors LLC, distributor registered with FINRA, is affiliated with Allianz Global Investors U.S. LLC; Allianz Global Investors GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors (Schweiz) AG, licensed by FINMA (www.finma.ch) for distribution and by OAKBV (Oberaufsichtskommission berufliche Vorsorge) for asset management related to occupational pensions in Switzerland; Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424, Member of Japan Investment Advisers Association and Investment Trust Association, Japan]; and Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan.
David Tan is the Chief Investment Officer, Fixed Income Asia Pacific with Allianz Global Investors based in Singapore. He is also a member of AllianzGI’s Global Policy Council, which is tasked with setting the strategic direction for investments for AllianzGI. He joined the firm in 2012 and has a wealth of experience in investment management and business development. He has over 26 years of investment experience.
Before joining AllianzGI, David was an executive director, fixed income Asia Pacific and Middle East at AXA Investment Managers United Kingdom. Before that, he was CIO at Kyobo AXA Investment Managers in Korea, where he was responsible for fixed income, equities, quantitative investments and asset allocation.
Prior to joining AXA Investment Managers, he was a senior portfolio manager responsible for managing total return portfolios at ABN Amro Asset Management and Deutsche Asset Management.
David has a B.B.A. in finance and economics from Simon Fraser University, Canada.
This video is loaded through YouTube. Google is collecting information about your interaction with this video by using cookies and may use this for targeting their offers. Please accept cookies in order to show the video.
The world is changing rapidly as disruption impacts every sector. We believe an active management approach is essential to make the most of the opportunities, while managing the threats inherent in this technological and social shift.