Singapore - More fund managers bullish on Asian bonds

In times of market uncertainty, some global investors panic and sell off their equities, and start looking for safe havens to park their cash.

US sovereign bonds are usually the choice of investors in such times. The downgrade of the US credit rating, however, has narrowed the playing field for sovereign bonds.

Wang Yu-Ming, Head of Fixed Income (asia) at Manulife Asset Management, said: “But what is different this time interestingly is that Asian sovereign bond market also has benefited. That is different this time than before, because typically in the past, investors dump everything but US Treasuries.”

A survey by HSBC also found that more fund managers are bearish on US Dollar Bonds. In the second quarter of this year, 25 per cent were bearish. This has since soared to over 70 per cent in the third quarter to date.

Many have turned bullish on Asian bonds instead, with more than 80 per cent overweight on Asian bonds this quarter, an increase from just a mere 14 per cent in the previous quarter.

Market volatility has also resulted with more investors choosing the safer option of sovereign bonds here.

Jim Veneau, Investment Director (Asian Fixed Income) at HSBC, said: “In that type of environment, the sovereign bond even with its much lower yield is going to outperform the corporate bond. Asian sovereign bonds, in particular for the month of August, had a positive return of 1.4 per cent and that compares to the corporate sector which had a negative five per cent return, so the sovereign bonds were clearly highly defensive.”

Indonesia and Philippine sovereign bonds have been cited by HSBC as highly defensive. And a defensive strategy is probably the right way to play it for now.

Source: CNA

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