26 Oct 2021

Singapore (26 October 2021) – A global study commissioned by Eastspring Investments (“Eastspring”), the USD 254 billion¹ investment management arm of Prudential plc, found that despite heightened market volatility, global investors are still bullish on Asian fixed income, especially China bonds. Two-thirds of global respondents also say they are likely to increase their exposure to Asian fixed income in the next year.

The Eastspring Asian Fixed Income whitepaper – entitled Discern and Diversify: Asian bonds increasingly sought for better diversification - which was developed in partnership with Institutional Investor sheds light on investor attitudes and preferences for Asian fixed income. The whitepaper is based on a comprehensive quantitative and qualitative survey of close to 200 institutional and wholesale investment decision makers in Asia, Europe and North America, and was carried out between July to September 2021.

The survey highlighted a growing interest among global respondents to diversify and expand into new fixed income segments amid uncertainty over the global growth and inflation outlook. More than 70% of all respondents and 73% in North America agree that Asian fixed income assets often provide higher risk-adjusted returns than those in developed markets, reflecting the region’s strong economic fundamentals.

Commenting on the results of the study, Ooi Boon Peng, Head of Investment Strategies, Eastspring Investments, said: “With Asia expected to remain the world’s growth engine, demand for Asian bonds will continue to be fuelled by Asia’s structural needs to finance and support infrastructure gaps, demographic shifts, and sustainable growth. The Asian credit market has long offered North American investors better risk adjusted returns compared to developed market bonds. Going forward, the growing size, maturity and diversity of the Asian fixed income market offers compelling investment opportunities for North American investors, especially as the region recovers post the COVID-19 pandemic”.

Among respondents seeking to increase Asian fixed income allocations, 77% of respondents in North America are most likely to invest in Asian sovereign debt, while 51% favour Asian investment-grade bonds. This is largely attributable to improvements in institutional stability and attractive yields from Asian fixed income.

Additionally, 63% of global respondents see the attractive yield advantage of China bonds as “especially suitable” for their portfolios over the next two years, particularly given the low yields in much of the developed markets of Europe and North America. 56% of global institutional respondents are bullish on China fixed income, compared to 61% of wholesale respondents. However, approximately 30% of those who find China bond funds suitable say they are held back by concerns about either illiquidity or price volatility. Currently, 40% of global respondents have a direct allocation to China fixed income with another 37% likely to do so in the next 24 months.

Understanding investor concerns

The survey data suggests that global investors believe more can be done by Asia’s issuers, regulators, and market participants to provide a well-informed, transparent, and highly liquid venue for fixed income investments.

42% of all respondents identified concerns about corporate governance, data quality and transparency, and reporting standards as the main obstacles to investing in Asian fixed income assets, while 39% of respondents cited liquidity issues. Another 38% pointed to the lack of suitable fixed income capabilities from external asset managers.

When selecting asset managers for Asian fixed income allocations, survey respondents based their hiring decisions largely on the talent, responsiveness, and expertise of investment professionals and their teams. Managers demonstrating knowledge and expertise of Asian fixed income markets at the country or market level (91%) is the most important attribute for respondents, followed closely by managers’ ability to provide customised fixed income solutions (86%).

Other key findings from the study include:

• Respondents in North America see rising inflation, fiscal and monetary policy and uncertain GDP growth as the key factors weighing most heavily on their fixed income portfolios.
• 67% of respondents in North America seek to further diversify their bond holdings and 66% look to expand holdings of new bond classes in new markets over the next two years.
• Currently, 30% of respondents in North America have a pan-Asian allocation and 31% have a direct allocation to fixed income in China.
• 77% of respondents in North America expect to increase their Asian fixed income holdings in the next year, and a further 17% are likely to increase their exposure in the next two years.
• 44% of respondents in North America see Asia ESG-focused bond funds as a suitable strategy for investing in Asian fixed income in the next 24 months, but 67% of these respondents cite availability as a major constraint.
• Global institutional respondents have a clear preference for active strategies when investing in Asian fixed income, favoring high conviction, target return and relative return strategies.

Seck Wai-Kwong, Chief Executive, Eastspring Investments Group, said: “As one of the largest Asian fixed income managers, Eastspring Investments is able to provide clients with customised fixed income solutions. Given the diversity of the Asian bond markets, having well-developed research and analytical capabilities is key, in addition to an on-the-ground presence. We have fixed income teams based in Singapore, Indonesia, Malaysia, Thailand, Vietnam, China, Taiwan and Korea, as well as in India through our joint venture. Our in-depth knowledge of Asian bonds and proximity to local markets help our investment teams to identify and seize value opportunities, and generate potential long-term returns for clients”.

To download or find out more about the Eastspring Asian Fixed Income whitepaper, please visit this link.

¹ AUM as at 30 June 2021.

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