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Optimism remains for Asian fixed income after 2024 bull run

After several years of lackluster returns, the Asian high yield market outperformed its European and US counterparts in 2024. This year, fixed income investors are likely to focus on issuers that can benefit from interest rate cuts in the US and changes in trade policy from President Donald Trump’s administration.
Optimism remains for Asian fixed income after 2024 bull run
The Asian fixed income market delivered a steady performance in 2024. But as credit spreads have narraowed, issuers that can benefit from further cuts in global interest rates and changes in trade policy from the US President Donald Trump’s administration are going to offer better returns, according to asset managers.
 
Trump on Saturday signed executive orders imposing sweeping tariffs on the country’s three largest trading partners Canada, Mexico and China amid investor concerns that an escalating trade war could hit the earnings of major companies and dent global growth. 
 
However, on Tuesday, the US president agreed to hold off imposing 25% tariffs on goods imported from Mexico and Canada for 30 days. But a US tariff of 10% on Chinese imports has come into effect. 
 
Asset managers have widely expected uncertainty from changes in US trade policy but believe they are manageable for most fixed income issuers in Asia. 
 
Andy Suen
PineBridge Investments

 
“From a credit investment perspective, we estimate that only 2.5% of issuers in the JP Morgan Asia Credit (JACI) Index derive over 10% of their revenue from the US and there may be a direct impact [on them] from increased tariffs,” Andy Suen, co-head of Asia Fixed Income, PineBridge Investments, told AsianInvestor
 
“These issuers are mainly in the industrial, consumer, and technology, media and telecommincation sectors in China, Taiwan, Korea, and India,” Suen said. 
 
Suen noted that Asian issuers in the fixed income market have already sought to mitigate risks in response to changes in US trade policy over the past few years. Korean automakers already have a relatively high level of production in the US, while Taiwanese tech companies have been building factories in the US and Europe.  
 
“In some cases, the fundamental impact on the issuer is mitigated by its technological leadership. [They will come up] with products that enjoy strong demand and are hard to replace. Additionally, select issuers in Southeast Asia and India could benefit from supply chain shifts in the region,” Suen said. 
 
“While financial markets may experience volatility as more details of Trump's policies are revealed, we generally view movements in credit spreads as opportunities for active investors,” Suen added.
 
After several years of lacklustre returns, Asian high-yield bonds rebounded sharply, with the JP Morgan Asia Credit Non-Investment Grade Index returning 15% last year.
 
Meanwhile, the Morningstar Asia USD Broad Market Bond Index gained 5% in 2024.
Murray Collis
Manulife

 

“Turning to high yield off the back of a strong rebound in this market in 2024, we continue to see attractive valuations in Asia, which offer a yield advantage in Asian high yield when compared to the US high yield market,” said Murray Collis, chief investment officer for Asia, excluding Japan, fixed income at Manulife, at a media briefing last month.

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