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BlackRock prefers India, China bonds

Asian bond markets are less vulnerable to the US interest rate rise and India and China are the two preferred countries for bond investments, said Joel Kim, head of Asia-Pacific fixed income at BlackRock.

“Asian countries broadly meet the criteria, with reduced vulnerabilities, positive reform momentum and inflation generally below expectations,” Kim said in the firm’s mid-year investment outlook.

“We expect Asian bond markets to be less vulnerable as a result, which gives Asian central banks the flexibility to diverge from the US Federal Reserve.”

However, within bonds, BlackRock prefers hard currency debt over local currency.

While the market expects the US to start tightening interest rates gradually later this year or early next year, it is premature to call an end to global quantitative easing, the firm said.

The People’s Bank of China has been taking monetary easing measures since early November while the Reserve Bank of India has also cut interest rates in early June. In Europe and Japan, the policy stance remains soft.

Separately, in its latest weekly market report, the firm said it sees value in China’s financial and state-owned enterprises and expects these sectors to benefit from easy monetary polices and the government’s reform drive. It also has a selective preference for Chinese high yield property issuers.

The firm also has a positive outlook on Japan and Australia due to their soft monetary policies.

“We are relatively optimistic about Japan due to improved wages and job conditions, lower energy prices, possible postponement of a further sales tax hike, and sustained low rates thanks to quantitative and qualitative easing.”

The Australian central bank is expected to resume monetary easing towards the end of the year and Australian bonds should outperform US bonds, Kim added.

Part of the Mark Allen Group.