(Bloomberg) -- Asian high-yield dollar bonds have room to rally even after delivering more than double the return of their global peers this year, money managers say.
Junk-rated debt in the region is attractive due to a superior economic outlook and higher yields, JPMorgan Asset Management says, adding those factors will help offset the fears over a US slowdown that led to last week’s risk selloff. PineBridge Investments is positive due to the likelihood of fewer potential defaults.
Asian high-yield dollar bonds have returned 12% in 2024, while their US and European peers rose less than 5%, Bloomberg indexes show. The gains have pushed down the yield premium on the Asia gauge to 526 basis points, but that’s still more than the 338 basis-point pickup on the US one.
“Our view is that economic growth in Asia should be more resilient than in the US, where concerns about a recession are mounting,” said Julio Callegari, chief investment officer of Asia fixed income at JPMorgan Asset in Hong Kong. “This should underpin the outperformance of Asia high yield at the macro level.”
While Asia’s economic growth is robust, this won’t prevent the region’s central banks from following any expected Federal Reserve interest-rate cuts, further supporting the performance of high-yield bonds, Callegari said.
Asia Pacific economies as a whole are expected to grow 3.8% this year and then 4.1% in 2025, according to a Bloomberg composite of analysts’ forecasts. That compares with projections of just 2.3% and 1.7% for the US.
Fewer Defaults
PineBridge says it expects to see fewer defaults in most of Asia than the US going forward.
“Asia high yield ex China property has historically maintained a lower default rate than US high yield,” PineBridge fund managers and analysts including Omar Slim wrote in a note. “We expect this trend to continue over the next two years, supported by the region’s healthy macroeconomic backdrop” and access to cheaper local funding channels, they said.
The default rate in Asia high-yield bonds was just 0.3% in the first half, and that proportion will likely stay below the historical average of 2% through the end of 2025, they wrote.
Conservative Plans
T. Rowe Price Group Inc. is optimistic on Asian junk debt as funding plans from issuers remain relatively conservative, said Sheldon Chan, a fund manager for Asia credit at the money manager in Hong Kong.
“I’d still say we are medium-term optimistic” on Asian high yield, he said. “We’ve not yet seen emerging-market corporates get to a more aggressive point where they are talking about raising funding to leverage up balance sheets for capex or for shareholder distributions.”
Still, concerns about slowing global growth will probably hurt the bonds of some of the more distressed names in the region that have outperformed so far this year, he said.
Union Bancaire Privee is asking its clients to invest in shorter maturity Asia high-yield bonds given the current attractive level of yields, and the firm isn’t overly concerned about recent signs of a US economic slowdown.
“We are asking clients to look at some short-dated high yield” in Asia to lock in bigger yields, Anitza Nip, head of fixed-income research at the firm in Hong Kong, said this week in a Bloomberg Television interview.
She said she favors BB rated corporate bonds in Asian countries such as India and Indonesia that may do better in the face of a US slowdown.
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