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Emerging Perspectives

A class apart: Asia credit emerges

18 September 2019
Authors: Alan SiowPortfolio Manager, Emerging Market Corporate Debt, Tom PeberdyProduct Specialist, Emerging Market Corporate Debt

What should investors know about Asia credit?

  • The US$1.2 trillion Asia credit market is a significant and growing part of the emerging market fixed income universe.
  • With a low correlation to other major asset classes (developed and emerging) Asia credit brings valuable diversification benefits.
  • It offers a rich hunting ground for active investors.
  • Distinct characteristics and a differentiated risk/return profile means dedicated expertise is vital for capturing alpha and managing risk.
  • Considering Asia credit through our compelling forces framework reveals a picture of fundamental strength at attractive risk-adjusted valuations with market price behaviour that is conducive to potential alpha capture for investors.

 

The dollar-denominated Asian corporate debt market has grown significantly in recent years. It’s now four-times the size of the European high-yield market and similar in magnitude to the entire emerging market hard currency sovereign bond universe.

For emerging market corporate debt investors, Asia is the largest region in the popular JP Morgan Corporate EMBI Broad Diversified (CEMBI) Index, accounting for 37% of the overall index. China has been a big driver of this growth but as other economies mature, we expect the diversity of the market to continue to rise.

We think Asia credit’s attributes extend far beyond its size and diversity, as Alan and Tom explain in a new paper. By analysing the investment universe through the lens of our compelling forces framework – covering fundamentals, valuations and market price behaviour, they conclude that Asia credit has much to offer investors.

The paper also points out that while Asia has enjoyed historical default rates that are among the lowest in the EM universe, the region has its fair share of highly leveraged corporate issuers in challenging sectors. Even as defaults remain rare, they can still occur, and the current macro backdrop further underscores the need for investors to be active, vigilant and discerning.

Investing in Asia credit requires the right expertise and a careful and selective approach, but we believe the potential rewards are worth the effort.

Read the paper

Emerging market: These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems.

Investments carry a risk of capital loss.

Alan Siow
Alan Siow Portfolio Manager, Emerging Market Corporate Debt
Tom Peberdy
Tom Peberdy Product Specialist, Emerging Market Corporate Debt

Important Information

This material is for informational purposes only and should not be construed as an offer, or solicitation of an offer, to buy or sell securities. All of the views expressed about the markets, securities or companies reflect the personal views of the individual fund manager (or team) named. While opinions stated are honestly held, they are not guarantees and should not be relied on. Investec Asset Management in the normal course of its activities as an international investment manager may already hold or intend to purchase or sell the stocks mentioned on behalf of its clients. The information or opinions provided should not be taken as specific advice on the merits of any investment decision. This content may contain statements about expected or anticipated future events and financial results that are forward-looking in nature and, as a result, are subject to certain risks and uncertainties, such as general economic, market and business conditions, new legislation and regulatory actions, competitive and general economic factors and conditions and the occurrence of unexpected events. Actual results may differ materially from those stated herein. All rights reserved. Issued by Investec Asset Management, issued September 2019.

The content of this page is intended for investment professionals only and should not be relied upon by anyone else

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