Asian fixed income stable in global context

Added 6th July 2016

The asset class has some insulation from global shocks due to the structure of the region's two largest economies, said Eastspring Investments CIO of Asian fixed income Boon Peng Ooi.

Asian fixed income stable in global context

Boon Peng Ooi

“Generally the risks to Asian fixed income would be regarding global recession and corporate bond defaults. But in Asia, the two big economies – India and China -- are largely domestic [consumption]-driven economies and therefore, any impact from Brexit and slowdown in Europe won’t affect Asia much,” Singapore-based Ooi told FSA.

"In Asia, we are safer. If you have certain amount of investment in Asia, it will give you the yield and the stability over time.”

Another concern about Asian bond markets is whether regional currencies are under pressure, he said.

“If Asian currencies weaken significantly, this would cause Asian bond markets to suffer, but that’s unlikely to happen. In currency terms, Asian bonds should be quite stable,” he said.

For example, a weaker pound does not have a spillover effect on Asian currencies. “Generally speaking, if the pound weakens further, people begin to discount more bad news from Brexit."

He said that after the Brexit vote, the pound sterling dropped by about 10%. Asian currencies, such as the RMB, the Singapore dollar and Hong Kong dollar had small single digit movements. 

Worries over a Brexit-sparked global recession are highly unlikely to play out, Ooi said.  

“It’s more of a recession risk. How big is the recession risk following the UK Brexit? The biggest impact is on the UK economy. On the European economy it will be moderate."

He believes the US is unlikely to fall into recession because exports to the UK make up only 0.7% of the US economy.

By comparison, Asia's economic engines are projected to have enviable growth. According to the IMF’s latest forecast, China is expected to register GDP growth of 6.5% for 2016 and 6.2% for 2017. In 2015, GDP growth was 6.9%.

India's GDP growth forecast has overtaken China's. The IMF expects 7.5% growth for India in both 2016 and 2017, up from 7.3% in 2015.

Constructive on Asia

Regarding his recommendation for investors, he said it depends on whether investors are willing to take risks in working on their portfolios. 

"If you are more conservative, you can do something with limited downside and more stability, then you can focus on investing in the dollar.

"We are constructive on Asia, and we are keeping with the view, and [this is] what we have done correctly. There has been a lot of cash and we would like to buy more corporate bonds and buy things with higher yield. That’s what we have been doing." 

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