US-based Legg Mason Global Asset Management is seeking to register three funds in Hong Kong and holds a bullish view on China's economy and potential demand, despite the recent fall in sentiment about the market there.

The products, which are awaiting approval, are a European high-yield fund; an emerging-market corporate debt fund; and a product comprising high-dividend global stocks, US real estate investment trusts and master limited partnerships in the US focused on energy utility service companies.

Legg Mason declined to comment on the current AUM of the strategies, how much it expected to raise from them, or where it expected demand to come from in terms of client type and geography.

“Income is still key,” noted Freeman Tsang, director of business development for China and Hong Kong at Legg Mason. “Last year the investor focus was balanced income; this year it's equity income.”

Why, then, is the firm introducing two fixed-income products to Hong Kong? Tsang said: “We want to get ahead of the curve, to offer products for the next wave of interest."

Moreover, return expectations have eased, he said: two years ago investors sought 6% to 7% annually, but now it’s 4% to 5%.

Asked about specific markets, Tsang is bullish about opportunities from China's qualified domestic institutional investor (QDII) scheme, notably with regard to insurance firms.

“Hong Kong is the main hub for Chinese insurers venturing outside the country,” he said. "They’re looking at dim-sum bonds and for managers to help manage assets outside Hong Kong."

And though domestic Chinese banks have been hiring to build platforms for wealth management, they still need to strengthen their experience, infrastructure, risk profiling and product registration, said Tsang.

Meanwhile, Western Asset Management, a fixed income house and Legg Mason affiliate, is upbeat on China. Its Asian Opportunities fund is overweight the country as a result, bucking the recent trend among the firm's peers.

“The government’s growth target of 7% to 7.5% for 2014 is reasonable and achievable,” said Lian Chia-Liang, co-head of Western's emerging-market debt team.

China’s policymakers have room for flexibility, and talk of a hard-landing, debt woes and a property bubble is overplayed, he argued. “The problems tend to be localised in certain sectors or parts of the country. At the national level there’s still a lot of capacity for demand for housing."

What’s more, household credit to finance housing is in a nascent phase compared with developed countries, he argued. “It’s still predominantly a cash society."

As for the spectre of mainland onshore bond defaults that has surfaced, Lian characterised this as a normalisation of the country’s credit market.

“There have been some headline concerns regarding corporate defaults in the domestic debt market. Provided that these events are non-systemic in nature, they should reinforce the need for credit discipline as the market expands and matures,” he argued.

Western is also overweight India; this is more in line with the market consensus.

Lian pointed to the election of business-friendly Narendra Modi as prime minister in May and the appointment of Reserve Bank of India governor Raghuram Rajan last year against a backdrop of relatively low oil prices as conducive for reform.

“This is a sweet spot, and to the extent that changes occur in good times, we are cautiously optimistic. The yield is attractive,” he said.

Another key investment target is Korea, which Western's Asian Opportunities Fund is also overweight.

On Wednesday last week, the country’s central bank cut its key interest rate 25 basis points to a new low of 2%. At the same time, it downgraded its growth forecast for this year to 3.5% from 3.8%.

“If anything, oil prices and labour market slack have created a benign inflation backdrop such that Korea could cut rates,” Lian said.

The Brent crude oil price stood at $85.83 on Friday, down from a year-to-date high of $115.19 on June 19. Though low oil prices will hit exporter Malaysia, its current account is in surplus, which insulates it somewhat, noted Lian.

In general, emerging-market debt is not likely to see the outflows of April, May and June last year, which were prompted by the US Federal Reserve’s announcement that it would scale back its bond purchases, Lian said. That drawdown saw many low-conviction investors head for the exit, he added.

“To the extent the tourist traffic is flushed out, the underlying investor base is a lot more strategic, and stickier. Nevertheless the overhang of global uncertainties continues,” Lian said.

Western Asset managed assets of $471 billion as of August 31. The firm declined to break out the figure for Asia.