With rate hikes expected to peak in 2023, the search for yield has begun with opportunities starting to open especially in the emerging markets. Overall economic activity, however, is being buffeted by the lacklustre performance of China’s post-Covid recovery, and the threat of persistent inflation in the developed economies. The shifting of the supply chain is also indicating likely higher cost in the near term.
How investors reshape their asset allocation and investment selection strategies at this important juncture will ultimately define the winners in this space. For example, India is becoming more attractive to global investors. With inflation under control and the Reserve Bank expected to pause its interest-rate hikes, onshore and offshore bond issuances could likely increase. The potential inclusion of Indian government bonds in global indices could unlock much needed capital for Indian borrowers.
China has confounded investors for over a year and sceptics say the fundamentals have irreversibly changed. However, robust policy changes are now starting to be rolled out. Especially for the right sectors such as in the new economy including electric vehicles, batteries, and renewables, intrepid investors could see value in beaten-down investments. The key is to remain vigilant while doing the groundwork to identify the opportunities.
Southeast Asia is coming into its own. As the prime beneficiary of the supply chain shifts in the region, there is a need for financing to support growth. Southeast Asian bond markets are becoming a sweet spot with Indonesian bonds being favoured by investors.
Meanwhile, environmental, social and governance (ESG) investments have become a permanent fixture for global portfolios. European investors looking to decarbonize their portfolios could turn to Asia’s sustainable debt market, which offers plenty of opportunities as Asian borrowers ramp on their green, social and sustainable (GSS) bond issuances. However, the various ESG frameworks and regulations in Asia and Europe, and their interoperability, remain a big challenge.
The Asset is pleased to be hosting the 18th Asia Bond Markets Summit – Europe edition. The event will bring together issuers, investors and other stakeholders involved in Asia’s bond markets to discuss the issues, challenges and opportunities in this space.
India continues to be an emerging market favorite and with the country set to be included in global indices, foreign investor participation will likely expand. On the other hand, China’s bond market, the second-largest in the world, is too big to ignore and global investors could still find pockets of opportunities in this space. Indonesian bonds could lead the way in reviving investor interest in emerging Asia bonds. Meanwhile, Asia’s GSS bonds could be a boon for investors looking to ramp up their sustainability game.