Asian total return opportunities amid ultra-low rate: Jason Yan
While fears of widespread coronavirus take a toll on the global economy, Jason Yan, Senior Fund Manager, shares his outlook for the Asian credit market.
The viral outbreak places evolving risks to economic activity and thus propels central banks to consider implementing easier monetary policies. The G7 nations said in a statement that they are ready to act and member states pledge to use all the tools available to minimize the impacts.
U.S. Federal Reserve subsequently announced on 3 March an emergency rate cut by 50 basis points to 1%-1.25% as it has already seen effects from the virus on global supply chain. Treasuries rallied further following the rare inter-meeting move. In our view, the Fed may further cut the rate at its meeting slated for 18 March. Other major central banks — such as the European Central Bank, Bank of England and Bank of Japan — probably follow the Fed’s decision.
The current environment of contained interest rate risk is poised to favor yield products, especially the interest-rate sensitive bonds. Investment grade issues and longer duration and maturity strategy are in favor. Moreover, cloudy economic outlook alerts investors to broad market default risk. We therefore remain selective on high yield issues in general.
Bank capital, utilities and railways are in favor because such issuers are to an extent related to government. More to the point, a diversified geographic exposure is achieved by investing in bank capital across the entire Asia Pacific region.
A country-specific opportunity is in India, where budget deficit led to rating downgrade and market selloff. In our view, state-owned enterprise, utilities provider and power station are relatively less sensitive to potential credit events in market and the resultant sentiment impacts. Buying opportunities have surfaced during the selloff.
In fact, as early as the beginning of 2019, U.S. Federal Reserve hinted at the policy meetings the prevailing downward direction of interest rate. The Fund recognized the regime change and extended the duration from 2-3 years to a level near 5 years, turning it into a major performance contributor. Some returns was derived from taking credit risk in a Chinese asset management company following its idiosyncratic corporate event and management shuffle.
The views expressed are the views of Value Partners Limited only and are subject to change based on market and other conditions. The information provided does not constitute investment advice and it should not be relied on as such. All materials have been obtained from sources believed to be reliable, but their accuracy is not guaranteed. This material contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Investors should note that investment involves risk. The price of units may go down as well as up and past performance is not indicative of future results. Investors should read the explanatory memorandum for details and risk factors in particular those associated with investment in emerging markets. Investors should seek advice from a financial adviser before making any investment. In the event that you choose not to do so, you should consider whether the investment selected is suitable for you.
This article has not been reviewed by the Securities and Futures Commission. Issuer: Value Partners Limited.