Asian bond market not only offer enough reasons for the investors of the region to consider investing but have also been capturing the attention of international investors. These markets not only provide a considerable yield premium compared to the other bond markets, they are also highly liquid and diverse. They are marked by abundant liquidity and growing volumes, an extensive range of issuer, tenor and yield, the growth of innovative structures, an extension of the regional investor base, and rerating among international fund managers.
Furthermore, the global importance of Asia as the driver of economic growth provides opportunities for strong returns. At the same time, the resilience it shows during a wider market or economic turmoil offers protection from volatility. And, here are the ten reasons why Asian bond markets must be considered by the investors.
Higher yield premium:
The yield of the Asian high-yield fixed income securities in Asian bond markets currently stands at around six percent compared to the four percent that is paid by the global peers. The spread differential needs to narrow with the increase in demand, while the supply gets restrained by the rise in the US interest rates. By comparison, the added yield gained by reallocation from European or US equivalent investment grade bonds to Asia stay in the range of 0.6 – 1 percent.
Sectoral and geographical diversity:
The Asian bond markets have emerging markets like the Philippines and Indonesia, along with the highly industrialized Taiwan, South Korea, Singapore, and Hong Kong, and the giants like India and China. The sectors range right from the Indonesian miners and speculative property companies, growth-focused technology and electronics firms, to the domestically-driven industries like manufacturers, utilities, retailers, and telecoms in the Philippines and India. The defensive sectors like Chinese railways and other such state-owned enterprises also feature here.
Reliable and strong economic growth:
The economic growth of Asia surpassed that of the other regions and it makes up the largest proportion of global economic growth. The Asian bond markets have shown great performance and stood resilient at the time of volatility. As an overall scenario, the Asian currencies are basically cheap because of the good accumulation of the foreign exchange reserves and the current account surpluses amassed over the years.
Branding and name recognition:
The Asian bond markets play host to a plethora of the finest companies across varied sectors like entertainment, manufacturing, automobiles, oil & gas, technology, and electronics. Several top-notch international brands have developed in places like Taiwan, Singapore, Korea, India, Hong Kong, and China, which have challenged the old-world names in market shares. In the meantime, better corporate governance and improved investor scrutiny have followed the listings present on the regional stock exchanges.
Infrastructural financing:
Countries across the region, for instance, the Philippines, Indonesia, and India have the aim to improve their transport networks and power capacities. The Asian bond markets are more likely to leverage the liquidity of Asia, and the demand of the investors for long-term maturities and higher yields. Most of the Asian countries have implemented varied strategies and plans for infrastructural improvements.
The capital issues from banks:
Several loss-absorbing bank capital hybrid bonds are expected to come up next year. As per the Asian bond markets, the banks are seen as better than the lenders in other areas due to their capital structures and better balance sheets. Thus, they are more likely to be highly aggressively priced. But, they provide greater opportunities for the investors to diversify and participate in the economic growth of the region.
Widening scope for foreign investors:
The local fixed income markets of the region are showing rapid growth. Despite the restrictions regarding the mitigation of foreign exchange rates volatility from the overseas flows, the markets are becoming keen on foreign investors. Already countries like China have allowed international investors to purchase onshore bonds via a government-appointed agent bank. Several other countries are also following suit in this regard.
All of these factors show a clear indication that Asian bond markets are no longer going to play only a peripheral role in the world markets. Their time has come, and it’s time for you to make the most of it.
