Asia credit offers diverse sectors which gives the asset class an edge in this environment, according to Nobert Ling, portfolio manager, sustainable and impact investments at Invesco Fixed Income.
He believes that the “performance of Asian credit issuers with high domestic focus and stable fundamentals could show resilience and present opportunities”. Notably, no non-financial sector exceeds 10% of the benchmark index weight.
These include selective issuers in China technology, media, and telecommunications, Australian utilities, Indian non-bank financial companies, Indian investment grade, Macau gaming and Asia consumer-oriented companies.
Indeed, during the recent global risk selloff amid tariffs concerns, Asia investment grade (IG) bonds have showed resilience and outperformed US IG bonds, with less spread widening, Ling (pictured) noted.
And although Asia high yield (HY) bonds have suffered steep falls, he has started to see more opportunities in the Asia HY space that pay double-digit yields among well-performing credits that are not in export driven sectors.
“This highlights the advantage of a flexible allocation strategy compared to a pure HY strategy, where we can pick the best ideas in the Asia HY space,” said Ling.
Moreover, “the strong technical support from local buyers is a key differentiator of Asia credit compared to global/US credit,” he said, noting that this factor has supported the performance of China SOEs, insurance companies, and LGFVs sectors while other sectors sold off.
Indeed, “as the imposition of tariffs will have relative winners and losers, it is important to identify the potential winners and exploit the market volatility/mispricing,” said Ling.
Chris Kushlis, chief emerging markets macro strategist at T. Rowe Price agrees that “within the Asia corporate sector, we see the direct impact on USD bond issuers to be selective rather than broad”.
He expects issuers in financials, utilities, and infrastructure sectors to remain insulated.
“There is also an indirect channel whereby pressure on regional FX could impact corporate financials; however, we take comfort from the generally conservative behaviour and hedging policies that we witness in Asian corporate funding profiles,” said Kushlis.
Vulnerable sectors include issuers in the hardware technology, semiconductor, and automotive supply chain industries affected by declining exports, and companies in cyclical industrial sectors such as commodities and ports whose operating environment may come under pressure from lower economic growth.
“Ultimately, we expect that the market environment in the forthcoming period will be one that exhibits greater volatility and dispersion, and reward active security selection,” he said.
