A global study commissioned by Eastspring Investments (Eastspring), the USD254 billion investment management arm of Prudential, has found that despite heightened market volatility, global investors are still bullish on Asian fixed income, especially China bonds.
Two-thirds of global respondents also say they are likely to increase their exposure to Asian fixed income in the next year.
The Eastspring Asian Fixed Income whitepaper which was developed in partnership with Institutional Investor sheds light on investor attitudes and appetites toward Asian fixed income. The whitepaper is based on a comprehensive quantitative and qualitative survey of close to 200 institutional and wholesale investment decision makers in Asia, Europe and North America, and was carried out between July to September 2021.
The survey highlighted a growing interest among global respondents to diversify and expand into new fixed income segments amid uncertainty over the global growth and inflation outlook. Over 70 per cent of all respondents and 65 per cent in Europe believe that Asian fixed income assets often provide higher risk-adjusted returns than those in developed markets, reflecting the region’s strong economic fundamentals.
Commenting on the results of the study, Ooi Boon Peng, Head of Investment Strategies, Eastspring Investments, says: “With Asia expected to remain the world’s growth engine, demand for Asian bonds will continue to be fuelled by Asia’s structural needs to finance and support infrastructure gaps, demographic shifts, and sustainable growth. The Asian credit market has long offered European investors better risk adjusted returns compared to developed market bonds. Going forward, the growing size, maturity and diversity of the Asian fixed income market offers compelling investment opportunities for European investors, especially as the region recovers post the Covid-19 pandemic.”
Among respondents seeking an increase in Asian fixed income holdings, 59 per cent of respondents in Europe are most likely to invest in Asian sovereign debt, while 37 per cent favour Asian investment-grade bonds. This is largely attributable to improvements in institutional stability and attractive yields from fixed income investments in Asia.
And it is because of this income appeal that a solid majority of global respondents (63 per cent) see China bond funds as “especially suitable” for their portfolios over the next two years. 56 per cent of global institutional respondents are bullish on China fixed income, compared to 61 per cent of wholesale respondents. However, approximately 30 per cent of those who find China bond funds suitable say they are held back by concerns about either illiquidity or price volatility. Currently, 40 per cent of global respondents have a direct allocation to China fixed income with another 37 per cent likely to do so in the next 24 months.
The survey data suggests that global investors believe more can be done by Asia’s issuers, regulators, and market participants to provide a well-informed, transparent, and highly liquid venue for fixed income investment.
Some 42 per cent of all respondents identify concerns about corporate governance, data quality and transparency, and reporting standards as the main obstacle to investing in Asian fixed income assets, while 39 per cent of respondents cited liquidity issues. Another 38 per cent pointed to the lack of suitable fixed income offerings from external asset managers.
When selecting asset managers for investment in Asian fixed income, respondents in this survey base their decisions largely on the talent, responsiveness, and expertise of investment professionals and their teams. Managers’ demonstrated knowledge and expertise of Asian fixed income markets at the country or market level (91 per cent) is the most important attribute for all respondents, followed closely by managers’ ability to provide customised fixed income solutions (86 per cent).
Seck Wai-Kwong, Chief Executive, Eastspring Investments Group, says: “As one of the largest Asian fixed income managers, Eastspring Investments is able to provide clients with customised fixed income solutions. Given the diversity of the Asian bond markets, having well-developed research and analytical capabilities is key, in addition to an on-the-ground presence. We have fixed income teams based in Singapore, Indonesia, Malaysia, Thailand, Vietnam, China, Taiwan and Korea, as well as in India through our joint venture. Our in-depth knowledge of Asian bonds and proximity to local markets help our investment teams to identify and seize value opportunities, and generate potential long-term returns for clients.”