With better fundamentals than its peers, the asset class is poised to be in a better shape for potential upside, anchored to Asia’s resilient credit profile and burgeoning multi-year sustainable investing opportunities in Asia, said the wealth and asset manager.
"Despite the notable challenges of the past year, the fundamentals of Asian fixed income remain intact with the asset class remained resilient throughout the year delivering positive performance,” it said in a research note today.
Manulife said going into 2021, it was positive on the broader Asian fixed income landscape given its resilient credit fundamentals, continued accommodative monetary and fiscal policy, and downward pressure on the US dollar.
"(With) aggressive rate cut and unprecedented balance sheet expansion by global central banks, more and more developed market government bonds become negatively-yielding.
"In the event of ‘tail-risk-event’, that is US Treasury yields to turn negative (for example, a delay with the distribution of vaccine or deflationary environment), we could see a major asset-rotation among bond and income investors, driven by the ongoing search for ‘positive’ yields, making Asian bonds stand out given their sound fundamentals,” Manulife said.
According to the asset manager, defaults are expected to remain reasonably contained and idiosyncratic in the first half of 2021 before an improvement in the second half as vaccines roll out globally, and Asia’s US dollar bond market is ready for re-financing issues, which are conducive to improve risk sentiment.
"Having said that, credit selection will remain key in Asian markets, as the recovery is expected to uneven across countries and sectors,” it said.
Manulife also sees emerging opportunities in Asian sustainable bonds.
It said although Asia arguably emphasised on environmental, social, and corporate governance (ESG) later than other regions such as Europe, recent trends showed momentum and optimism for investors in the space.
"With China, Japan, South Korea, Hong Kong, and New Zealand committing to becoming carbon neutral, and other governments are likely to follow, we expect to witness a greater number of green bond issuance,” it said.
Manulife said global green bond issuance grew 12 per cent in 2020 compared to the first nine months of 2019 and the global trend was supportive of further growth in the green and sustainable-labelled bond segment.
"All in all, we believe Asian fixed income portfolios should not only consider ESG risks but actively take advantage of the ample ESG opportunities.
"While 2020 was an important year for ESG in Asia, we expect even more in 2021, as investors and companies explore innovation in this space,” it added. - Bernama
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