Conquering Asia’s bond markets

How can investors overcome corporate governance and liquidity concerns in the Asian bond market?

2021 has been rocky for Asian bonds, with rising bond defaults in China and a delayed economic recovery in the region. But despite the Asian bond market’s recent volatility, investors we surveyed are still keen to increase their exposure in Asian bonds over the next 1-2 years. Why? It’s because they believe that Asian bonds offer higher risk adjusted returns than other developed market bond markets.

It’s not all a smooth road to the top, though. Corporate governance and liquidity are two key concerns investors are worried over, based on our global survey. Thankfully, these issues have improved for the region as a whole. Asia’s corporate governance has largely strengthened, and liquidity in the local currency corporate and government bond markets has also improved.

An increase in Environment, Social, and Governance (ESG) efforts going forward, can cause further meaningful changes in Asia’s corporate governance frameworks. Policy makers have also put in place bond initiatives that can help to enhance liquidity in the region’s bond markets.

That said, the different bond markets in the region have different standards of corporate governance and liquidity. This diversity provides active managers with the opportunity to add alpha. An active manager with scale for example may be able to improve trading efficiencies which can increase returns. And because human relationships are very important in Asian markets, having local investment teams on the ground can also help managers improve their engagement with companies, as well as perform better analysis. 

There might be some challenges when investing in the Asian bond markets, but an active manager can help you overcome them, as well as unearth some room to add alpha. 

Want more insights to pave your way into bond investing in Asia? Read our article, “Overcoming the challenges of investing in Asia’s bond markets”.

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