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Instos plan Asia-Pacific bond buy-up
Record levels of bond issuance in Asia-Pacific are pushing institutional investors to assess their global portfolio allocations to Asia-Pacific, according to AllianceBernstein.
"Direct allocation to Asia-Pacific bond markets by institutional investors has so far lagged retail interest in the region, but our conversations with institutions suggest that's about to change," said Hayden Briscoe, director of Asia-Pacific fixed income at AllianceBernstein.
Briscoe said it was a quickly developing trend because of a view that the most attractive investment opportunities in the region could be snatched up.
He said most Asian countries were experiencing higher growth than the developed market, which equated to higher free cashflow for corporates.
The links between the private and public sector in Asia was also very strong and amounted to implicit sovereign support — something often overlooked by investors, AllianceBernstein said.
"The Asian government bond markets, broadly speaking, consist of net creditor nations which have consistently generated current account surpluses, paying investors yields two-to-five times higher than those of developed countries.
"If we look at Asian corporate bonds, they're predominantly investment-grade markets, but they're paying over 100 basis points more in yield than global investment-grade credit," he said.
The 100 basis-point spread would compress as interest built and investors started buying Asia-Pacific bonds, he said, but strategies that made generic allocations to the region risked underestimating the rapid increase in the market's size, sophistication and complexity, according to Briscoe.
"We recommend that managers be given a broad and flexible approach allowing rotation across countries, sectors and currencies in the region.
"And we believe very strongly in solid, on-the-ground research conducted as part of a global effort which applies both quantitative and fundamental techniques to generate local and global research insights," he said.
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