HONG KONG • The Asian dollar bond market is finishing its worst year since 2013. But strong fundamentals in many sectors and expectations for support from policymakers next year mean there are pockets of value, more investors are saying.
Debt buyers are closely watching for any additional credit easing in China, which could reduce funding pressures for some borrowers from the nation, the biggest issuer of the securities.
Average yield premiums on Asian US currency high-yield bonds rose last month to the highest since March 2016, according to a Bloomberg Barclays index.
"There are quality opportunities because everything has widened out, and we don't have to take as much risk," said Ms Elisabeth Colleran, a portfolio manager on emerging market debt at Loomis, Sayles & Co. "The valuations and the fundamentals remain very strong."
After rate hikes by the United States Federal Reserve and global trade tensions brought gloom to the Asian dollar bond market this year, the notes may outperform other debt markets next year and deliver gains, according to Ms Colleran. Some investors say the region's stable macroeconomic and corporate fundamentals make its bonds appealing.
The risks have not gone away though. Ms Colleran said one big concern is the possibility of increased protectionism. Elections in Indonesia and India next year are also in focus, and have the potential to unnerve Asian credit markets if incumbent leaders do not win as expected.
Here are more investor views:
LEONG WAI MEI, PORTFOLIO MANAGER AT EASTSPRING INVESTMENTS
Some of the top picks are within the Chinese asset management company industry, where spreads have widened to levels that justify taking risks, particularly because the firms are considered systemically important. Defaults are likely to remain limited to smaller fringe players in some sectors.
LOH JIAN WEI, PORTFOLIO MANAGER AT NIKKO ASSET MANAGEMENT
Expect low single-digit positive returns for Asian investment-grade bonds next year, with Asian high-yield bonds outperforming investment-grade bonds. Within China, there is more potential for short-dated property bonds than for industrials.
Also on the cards is an overweight position on financial subordinated debt in places with strong banking systems, such as Singapore and Hong Kong.
ELISABETH COLLERAN, PORTFOLIO MANAGER AT LOOMIS, SAYLES & CO
There is scepticism over Chinese industrial space as yields have risen a lot and it is harder to get good information. Meanwhile, I see opportunities in Chinese property bonds and Indonesian high yield, and also value in quality Indonesian corporates and quasi-sovereigns.
Indian issuers, such as clean energy companies, are also looking feasible after declines.
MARK HAEFELE, CHIEF INVESTMENT OFFICER, AND TAN MIN LAN, ASIA-PACIFIC INVESTMENT OFFICE HEAD, AT UBS GLOBAL WEALTH MANAGEMENT
Expect Asia credit to generate about 3 to 4 per cent of total return next year. Some picks include short-dated high-yield Chinese property developer bonds, bank Tier 2 debt and select Chinese state-owned enterprises.
BLOOMBERG
