We believe three characteristics of Asian investment grade credit may help them weather the impact from COVID-19; government or state owned issuers, domestic monetary policy support and strong local investor base. First, around 38% of the J.P. Morgan Asia Credit Index (JACI) are government or state owned1 which typically benefit from government support, especially sectors considered systematically important to the economy (e.g., railyway operators and utility providers). Secondly, most Asian issuers can issue in the local currency bond market benefit from domestic monetary easing policies. Third, Asian issuers with deep local history typically enjoy a strong and loyal local investor base.
Asian investment grade (IG) credit offers premium yield spread to US IG credit - investors may enjoy higher yields on Asian versus developed market corporate bonds with theoretically equivalent risk exposure.
Historical Asian IG corporate bond yield over US IG credit2
We expect Asian central banks may ease further as counter-cyclical measures, which should provide a positive backdrop for Asian local bond markets.
Asia & developed market 10 year government bond yield3
The expected default rate for Asian high yield bonds is relatively lower than other emerging markets, reflecting the region’s sound fundamentals.
Estimated emerging market corporate high yield bonds default rates4
An investment grade dominated portfolio with average credit rating at BBB (investment grade quality). Sovereign ratings of many Asian economies have upgraded over the past decade. Markets such as Philippines and Indonesia have upgraded from a high-yield to an investment grade issuer over the past decade.
Most of Asian markets are now of investment grade quality5
Flexible strategy allocating across USD and local currency Asian bonds to exploit investment opportunities in both markets. Local currency bonds which predominately issued by Asian governments offer investors with top-down/ macroeconomic opportunities (e.g. interest rate cut cycles). With Asian USD bonds are predominately issued by corporation provide us bottom-up/bond picking opportunities.
The above chart is for illustration purposes only.
The Fund aims to make monthly distributions.
(Dividend rate is not guaranteed. Dividends may be paid out of capital. Refer to Important Note 2.)
Asian fixed income
by lead fund manager
Fixed income professionals in Asia9