Is the outlook of Asian Investment Grade bonds positive?

Asian Investment Grade (AIG) bonds have diversified and added value to investment portfolios by delivering attractive risk-adjusted returns during periods of deteriorating growth. Current yields offer substantial buffers against further monetary rate rises or credit spread widening.Market Buzz_FEB 15_Content Visual

What is the investment outlook for Asian Investment Grade in 2024, given the prevailing macro environment (slowing global growth, geopolitical, higher rates)?

Fidelity remains broadly constructive on AIG bonds in 2024, as the fundamentals and technicals of the asset class remain supportive. This offers strong defence against market headwinds such as a potential global recession. Asian economies remain resilient, too, amid slowing global growth, higher policy rates, and geopolitical tensions. In addition, much of the global growth remains in Asia. Some central banks in the region have started to show signs of a pivot from tightening monetary rate policies, and Asian countries’ ample foreign exchange reserves provide them with greater resilience amid the US-dollar strengthening. While developed markets continue to deal with elevated and sticky inflation, Asia has better control over inflation due to its role in the global supply chain and its raw materials self-sufficiency. Also, Asia has the largest growing markets, such as China and India. There are risks in ever-changing markets, but AIG bond issuers’ solid credit profiles – with healthy leverage ratios and ample liquidity buffer – provide investors with a more defensive way to participate in Asia’s growth potential and offer diversification during periods of deteriorating growth.

What could surprise markets in 2024, either positively or negatively?

Geopolitics will remain a wildcard for 2024. Any unexpected outcomes in the US presidential elections could surprise the market on the downside. In addition, further escalation in the Russia-Ukraine war ongoing since February 2022, or the recent intensification in the Israel-Hamas conflict, could trigger additional market weakness.China’s transition from the old growth-focused economy – which leaned towards manufacturing and the highly leveraged real estate value chain – to a new economy that prioritises domestic consumption and technology higher up on the value chain could lead to market volatility in 2024. However, Fidelity believe that new investment opportunities may arise from this structural change.

What themes, sectors or regions would offer opportunities and potential risks?

Although AIG bond spreads remained tight through most of 2023 on the back of the favourable macro backdrop in the region described earlier, there are markets with potential value, such as South Korea and Japan. Fidelity also sees better value in shorter-dated and high-quality bonds across the region, where Fidelity may earn attractive returns due to the higher base rate environment without assuming excessive credit risk. With many Asian countries potentially reaching their inflation peak, some central banks have paused their tightening cycles and begun showing signs of turning dovish. This opens the door for opportunities in the local currency markets, such as local currency duration or local currency bonds that offer an attractive yield pick-up when hedged back to the US dollar because of the potential shifts in interest rate differential.Want to search and invest in related funds?Open the WeLab Bank App and click【GoWealth > Pick your own funds > Bond and Money Market > Asia Bond】to find out more!Do not want to miss our latest product offerings, promotions and wealth management tips? Visit the App and proceed to【Settings > Marketing preferences】to accept receiving our marketing communications as well!Importance NoticeThis document is for general information only. The information or opinion herein is not to be construed as professional investment advice or any offer, solicitation, recommendation, comment or any guarantee to the purchase or sale of any investment products or services. This document is for general evaluation only. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person or class of persons and it has not been prepared for any particular person or class of persons. The investment products or services mentioned in this webpage are not equivalent to, nor should it be treated as a substitute for, time deposit, and are not protected by the Deposit Protection Scheme in Hong Kong.The information or opinion presented has been developed internally and/or taken from sources (including but not limited to information providers and fund houses) believed to be reliable by WeLab Bank, but WeLab Bank makes no warranties or representation as to the accuracy, correctness, reliabilities or otherwise with respect to such information or opinion, and assume no responsibility for any omissions or errors in the content of this document. WeLab Bank does not take responsibility for nor does WeLab Bank endorse such information or opinion.Investment involves risks. The price of an investment fund unit may go up as well as down and the investment funds may become valueless. Past performance is not indicative of future results. WeLab Bank makes no representation or warranty regarding future performance. Any forecast contained herein as to likely future movements in interest rates, foreign exchange rates or market prices or likely future events or occurrences constitutes an opinion only and is not indicative of actual future movements in interest rates, foreign exchange rates or market prices or actual future events or occurrences (as the case may be).You should not make any investment decision purely based on this document. Before making any investment decisions, you should consider your own financial situation, investment objectives and experiences, risk acceptance and ability to understand the nature and risks of the relevant product(s). WeLab Bank accepts no liability for any direct, special, indirect, consequential, incidental damages or other loss or damages of any kind arising from any use of or reliance on the information or opinion herein. You should seek advice from independent financial adviser if needed.WeLab Bank is an authorised institution under Part IV of the Banking Ordinance and a registered institution under the Securities and Futures Ordinance (CE Number: BOJ558) to conduct Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities.This document is issued by WeLab Bank. The contents of this document have not been reviewed by the Securities and Futures Commission in Hong Kong.