26 Oct 2021

Singapore (26 October 2021) – A global study commissioned by Eastspring Investments (“Eastspring”), the USD 254 billion1 investment management arm of Prudential plc, found that despite heightened market volatility, global investors are still bullish on Asian fixed income, especially China bonds. Two-thirds of global respondents also say they are likely to increase their exposure to Asian fixed income in the next year.

The Eastspring Asian Fixed Income whitepaper which was developed in partnership with Institutional Investor sheds light on investor attitudes and appetites toward Asian fixed income. The whitepaper is based on a comprehensive quantitative and qualitative survey of close to 200 institutional and wholesale investment decision makers in Asia, Europe and North America, and was carried out between July to September 2021.

The survey highlighted a growing interest among global respondents to diversify and expand into new fixed income segments amid uncertainty over the global growth and inflation outlook. Over 70% of all respondents believe that Asian fixed income assets often provide higher risk-adjusted returns than those in developed markets, reflecting the region’s strong economic fundamentals.

Commenting on the results of the study, Ooi Boon Peng, Head of Investment Strategies, Eastspring Investments, said: “With Asia expected to remain the world’s growth engine, demand for Asian bonds will continue to be fuelled by Asia’s structural needs to finance and support infrastructure gaps, demographic shifts, and sustainable growth. The Asian credit market has offered investors relatively better risk adjusted returns compared to developed market bonds. Going forward, we believe that the growing size, maturity and diversity of the Asian fixed income market will continue to offer new and compelling investment opportunities, especially as the region recovers post the COVID-19 pandemic”.

Among investors seeking an increase in Asian fixed income holdings, 68% are most likely to invest in Asian sovereign debt, while 46% favour Asian investment-grade bonds. This is largely attributable to improvements in institutional stability and attractive yields from fixed income investments in Asia.

And it is because of this income appeal that a solid majority of global respondents (63%) see China bond funds as “especially suitable” for their portfolios over the next two years. 56% of global institutional respondents are bullish on China fixed income, compared to 61% of wholesale respondents. However, approximately 30% of those who find China bond funds suitable say they are held back by concerns about either illiquidity or price volatility. Currently, 40% of global respondents have a direct allocation to China fixed income, with another 37% likely to do so in the next 24 months.

Understanding investor concerns

The survey data suggests that global investors believe more can be done by Asia’s issuers, regulators, and market participants to provide a well-informed, transparent, and highly liquid venue for fixed income investment.

42% of all respondents identify concerns about corporate governance, data quality and transparency, and reporting standards as the main obstacle to investing in Asian fixed income assets, while 39% of respondents cited liquidity issues. Another 38% pointed to the lack of suitable fixed income offerings from external asset managers.

When selecting asset managers for investment in Asian fixed income, respondents in this survey base their decisions largely on the talent, responsiveness, and expertise of investment professionals and their teams. Managers’ demonstrated knowledge and expertise of Asian fixed income markets at the country or market level (91%) is the most important attribute for all respondents, followed closely by managers’ ability to provide customised fixed income solutions (86%).

Seck Wai-Kwong, Chief Executive, Eastspring Investments Group, said: “Given the diversity of the Asian bond markets, having well-developed research and analytical capabilities is key, in addition to an on-the-ground presence. Eastspring Investments is one of the largest Asian fixed income managers with teams based in Singapore, Indonesia, Malaysia, Thailand, Vietnam, China, Taiwan and Korea, as well as in India through our joint venture. This provides us with in-depth knowledge of Asian bonds and proximity to local markets”.

Other key findings from the study include:

  • Respondents see rising inflation, uncertain GDP growth, trade policy, and tapering concerns as some key factors that weigh most heavily on their fixed income portfolios.
  • 70% of respondents seek to further diversify their bond holdings and 66% look to expand holdings of new bond classes in new markets over the next two years, while two-thirds anticipate a reduction of overall exposure to bonds.
  • Currently, 38% of all respondents have a pan-Asian allocation while 46% have a country-specific allocation.
  • 68% of respondents expect to increase their Asian fixed income holdings in the next year, and a further 18% are likely to increase their exposure in the next two years.
  • 39% of respondents see Asia ESG-focused bond funds as a suitable strategy for investing in Asian fixed income in the next 24 months, but 52% of these respondents cite availability or illiquidity as a major constraint.
  • Global institutional respondents have a clear preference for active strategies when investing in Asian fixed income, favouring high conviction, target return and relative return strategies.

To download or find out more about the Eastspring Asian Fixed Income whitepaper, please visit this link.

1 AUM as at 30 June 2021.

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