Human capital has gained value in the past 12 months. Investors voting for the best in research, sales and trading in the local currency bond markets nominated 17% more individuals than last year. As part of the authoritative 15th annual benchmark survey of investors in 11 Asian local currency bond markets, a record 478 sellside individuals were singled out for praise, up from 408 in 2014.

 

Pan Asia

Johanna Chua
Asian rates may edge higher alongside upward-shifting global yields, and we recommend being more selective in duration exposure in the region. We are overweight duration in Thailand, biased to fade the back-end sell-off in Korea rates (we like receiving long end of Korea swap curve) and continue to like cash bonds in India, though watchful of a below-par monsoon (we recommend paying front end OIS against it). We are currently neutral Indonesia bonds given seasonal headwinds on the negative spillover from a weaker currency (though yields are relatively attractive and a “buy-on-dip” opportunity could eventually emerge) and expect the back end of Malaysia bond yields to underperform peers as political and credit concerns persist while monetary policy is unlikely to ease.

 

Danny Suwanapruti
Negative (over the next 6 to 12 months).
Over the next six to 12 months, we expect Asian bond yields to stay low and we see scope for more monetary policy easing in China, India, Indonesia, Thailand and Korea. However, once the US Federal Reserve (Fed) rate hikes start, it will be harder for Asian central banks to cut policy rates. FX will continue to be the driving force behind total returns and although the outlook for emerging market (EM) local currency debt is negative, we expect Asia to outperform its Latin American and Eastern European counterparts.

Within Asia, we still like the high-yielders such as India and Indonesia, because we see that the fundamentals are still positive. Philippines should also outperform as flush onshore liquidity is keeping yields low, while the robust current account is supportive of the currency. We see Thai bonds as becoming increasingly vulnerable. The duration outlook is positive from a dovish monetary policy outlook, but the central bank has become more active in trying to weaken the currency by encouraging outflows. Meanwhile, despite the sharp decline in oil prices, foreign holdings in Malaysia have been sticky and most of the selling over the last six months was confined to bills. However, the current account should continue to deteriorate through to the third and fourth quarter of this year due to the lagged impact of lower LNG prices. In Korea, although the Bank of Korea may cut rates again, the shift of mortgages from banks to the Korea Housing Finance Corporation could lead to reduced demand for Treasury bonds from banks, as they take on more duration from the issuance of mortgage backed securities.

That said there is increased interest in EM Asia debt from investors in mainland Europe amid negative or very low interest rates in traditional core European markets. While local investors in Asia have been worried over foreign outflows due to the stronger USD, European investors note that EM Asia has outperformed Latin America, CEMEA and the Euro, which is the base currency for several European investors.

Leong Wai-Ho
Positive.
Asian local currency markets have received a new lease of life, now that it is clear the Fed will be hiking rates at a more cautious pace. At the same time, Asia stands out, given its stronger fundamentals and impending oil dividend - which could mean that growth accelerates more sharply in the second half of this year. India and Indonesia are now clear structural transformation stories, sparked by lower oil prices.

 

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Hong Kong

Becky Liu
Most positive.
We are positive on the offshore renminbi bond market currently. We expect bond yields to decline further in Q2 and Q3, as valuations are attractive, primary issuance is weak, and the liquidity condition is likely to ease further. The global asset allocation to renminbi is likely to rise amid the IMF’s SDR review. Many short-dated bonds are yielding higher than their onshore peers (1Y CGB yielding at 3.15% in the offshore market, versus 2.7% in the onshore market). Primary issuance had been weak this year (year-to-date issuance, at CNY155 billion, was down by more than 45% versus the same period last year). We maintain our full year issuance forecasts for offshore renminbi bonds and CDs unchanged at CNY 480-500 billion, down from CNY 578 billion last year. We expect further loosening of the CNH liquidity condition and lower USDCNH CCS (Cross Currency Swap) rates. PBOC is likely to remain with an easing bias with two more RRR cuts in H2-2015, in our view. The flush liquidity condition in the domestic market will filter through the CNH market. Moreover, southbound inflows under the Shanghai-Hong Kong Stock Connect programme could more than offset earlier CNH liquidity outflows due to northbound investments in the months ahead. We recommend outright long offshore CGB bonds at current levels, and receive USDCNH CCS.

 

Sheree Ma
Positive.
I am positive on the Hong Kong dollar market as we have seen continued demand for Hong Kong dollar assets. With new participants in the market, we are seeing more international issuers as well. I think the market will become more interesting if we can develop more long-dated investment solutions. I am more positive on the offshore renminbi bond market due to the internationalization of renminbi. In the past few months, we have seen volatility in the US dollar/renminbi exchange rate as well as in offshore renminbi rates. This has helped to develop a solid investor base that can withstand renminbi depreciation fears and market volatility.

 

Rebecca Lau
Positive.
Asset allocation is a big topic, but asset diversification is a must. The trend is investors catering for Asian local currencies on reasonably good credit providing yield enhancement. US interest rates are still mixed, a rate hike may be deferred to later in the year. Higher US rates are coming but we do not expect the first move until the end of 2015 which will extend the attraction of Asian currencies. The Chinese yuan is still under the radar, the focus being the value on the currency and interest rate movement with hot capital inflows seeking business opportunities.

 

Evelyn Wong
Positive.
Quantitative easing from many central banks around the world is likely to benefit some Asian local currency bond markets.

India

Sonal Varma
Neutral.
Domestic fundamentals are positive (low inflation and increased macro stability), but global factors (US Fed hike) may move in the opposite direction.

 

Indranil Sengupta
Positive.
We are positive on the Indian rupee bond market over the next twelve months. First, we expect the RBI to cut rates by 75 basis points by April 2016. Second, the government’s borrowing programme is actually lower. Finally, the RBI will likely hike the FPI G-sec investment limit as markets price in the Fed’s rate hikes.

 

Chaitanya Sampat
Positive.
The pace of reforms is expected to pick up steam in the next 12 months and this should lead to a slow but steady revival in the investment cycle. Subject to a normal monsoon and coupled with the clearing of road blocks, the Indian rupee bond markets definitely look very positive.

 

Saif Kabir
Most positive.
India’s local bond market looks good on a one-year horizon with the central bank expected to cut rates and growth picking up. On the macro front, India is doing much better than its peers and is expected to get a rating upgrade which bodes well in attracting further flows both for government and corporate bonds. The above factors along with control over inflation will give the Reserve Bank of India (RBI) enough space to cut rates once the global volatility on account of the expected or actual Fed hike settles down. With bank lending slowing down, the expectation for an increase in Foreign Portfolio Investor limits for corporate bonds is high and that should in turn keep the corporate bond market supported along with other factors. One, however, needs to keep an eye on how the monsoon pans out and also whether Brent oil moves up sharply.

 

Manoj Sukhani
Positive.
Reduced oil prices have changed the economic landscape. Inflation is under control. The fiscal deficit is better than predicted. Several reforms are in the pipeline. If these are implemented the country will embark on a solid growth path. While domestic factors indicate a benign interest rate regime, external factors like the Fed rate hike can play spoilsport.

 

Dhawal Kumar
Positive.
India’s local currency bond markets stand at a crossroads as is evident from the recent sell-off across Asian rates and weakness in the rupee. But with inflation under control, this decline in the currency can boost the relative competitiveness of the Indian economy. Risks to domestic inflation may be overestimated and the trajectory of the CPI should fall well within the Indian Central Bank’s comfort zone of around ~5% for the year. If crude oil prices see a significant correction from here, there is a good chance that shale producers who previously shut down production may come back on line. Another key point to note is that bond sales by companies from Russia and other ex-Soviet countries have fallen to 10-year lows this year. Even Latin American companies’ debt sales have fallen to less than 20% of total EM issuance from ~40% two years ago This lack of supply makes Asia, particularly India, an obvious option for the fast growing global emerging market funds. In fact, the current rupee and bond levels in India provide an attractive opportunity for investors who missed out the rally in the fixed income market in 2014.

 

Prateek Goyal
Most positive.
The Indian economy is on an upward trajectory mainly due to the stable government and positives from lower commodity prices, mainly oil. However, the slowdown of legislative reforms like Land Acquisition and nationwide single Goods and Services Tax has lowered positive sentiments. Global concerns like weak economic growth, problems in the Eurozone and geopolitical issues in the Middle East, Russia and other oil producing nations were persistent worries this year. Bond yields have risen in line with global debt market yields during last month. Amid this, the Indian domestic markets remain strong on account of falling inflation, a lower current account deficit, rising forex reserves, stable currency and improving growth sentiments. With such improved macro factors the Indian sovereign rating upgrade is a strong possibility in the near future. The RBI may cut the policy rates further, based on the falling inflation trajectory and better fiscal management. Lower inflation, better transmission of rates and other developmental factors, guide the interest rates in India and they all point towards lower rates.

 

Indonesia

Helmi Arman
Neutral.
We have a neutral view. Slower-than-expected economic growth and expectations that policymakers will turn dovish do not necessarily translate to significant optimism in the local-currency bond market Yields are attractive in relative terms, but perceived cracks in the Indonesia infrastructure story may further emerge. This casts clouds over fiscal financing requirements. Perceived exchange rate risk may also heighten as equity market investors adjust their expectations regarding the pace of infrastructure realization.

 

Kemal Aditya
Neutral.
Increased volatility and the weakening of the rupiah combined with slower economic growth and the impact of global market movements has triggered a correction in bond prices. These are a reality check that must be faced in the next six to 12 months. However, this makes Indonesia’s bond yields become attractive especially with a better fiscal policy and lower inflation expectations toward the end of 2015.

 

Malaysia

Winson Phoon
Neutral.
We have a neutral outlook for the Malaysian ringgit bond market. We think the appeal of Malaysia’s fundamentals remain intact despite lingering concern on Malaysia’s sovereign rating. The government’s fiscal consolidation path while somewhat distracted by the decline in oil price, the long-term goal of achieving a balanced budget by 2020 is not derailed. This would translate into a broadly moderate government bond supply profile and any downward revision in the rating of the country could, in fact, provide a window of buying opportunity for investors who have a longer term view on the country. One of the key challenges however is, like other regional markets, our domestic bond market is not immune from the volatility of bond yields in the developed markets, but the availability of a diverse local investors base with reasonable depth to a certain extent serves as a volatility buffer. Overall, we are cautiously optimistic.

 

Ray Choy
Neutral.
Concerns over Malaysia’s sovereign rating will likely be a non-event as the nation is rated well-within the investment grade category. Furthermore, Malaysia continues to enjoy a positive balance of payments position with the right steps taken towards consolidating the public sector’s financial position. However, Malaysia should not rest on its laurels and the economy should pay heed to signals from the market to safeguard its availability and favourable cost of financing. Nonetheless, investors are hopeful to see further progress in terms of economic diversification and a greater move up the value chain which I believe is possible should Malaysia work harder towards the optimal mix of policies, alongside motivated national and societal will. On a shorter-term note, interest rates are likely to stay neutral amid flush liquidity in the domestic bond markets, coupled with a stabilising global economy.

 

Chang Wai Ming
Positive.
Despite lingering concerns over subdued oil prices and prospects of US interest rate lift-offs, the Malaysian ringgit bond market is expected to remain supported. Benign global growth and monetary policy divergences will resonate as key themes going forward. Concerted monetary easing by PBOC, ECB, BOJ combined with dovish Asian central banks are expected to prompt demand for higher yielding assets, boding well for EM bonds. With prospects of Malaysia’s overnight policy rate (OPR) staying par at 3.25%, a higher relative yield of ringgit bonds will appeal to investors. Interestingly, short to mid-tenured German bunds and Japanese government bonds are currently trading at negative to near negative yields.

Going forward, international financial markets will continue to be affected by a shift in global liquidity and more pronounced FX volatilities. On this note, the Malaysian ringgit bond market appears better positioned in withstanding such volatilities, benefiting from size of market depth (with bond market outstanding exceeding RM 1 trillion) and the presence of healthy backstops. Real money investors, as well as the presence of pension funds and insurance companies, are expected to lend support hence moderating the impact of possible fund flow reversal risks.
On a related note, demand for Islamic Government Investment Issues (GII) has garnered strong traction. The investment appeal of GII is set to soar higher taking the cue from positive catalysts following inclusion into the Barclays’ Global Aggregate Index effective 31st March 2015. Following the inclusion, foreign ownership of GII surged to RM10.7 billion in April versus March’s RM5.9b. Meanwhile foreign holdings of Malaysian Government Securities (MGS) appear to be holding up well, at RM157 billion (circa 47% of outstanding MGS as at end April 2015) despite Fitch cautioning on possible downgrade risk and the revision of Malaysia’s sovereign rating. The growing demand for GII will accelerate further yield converges nearer towards MGS. Additionally, bargain hunting for government guaranteed bonds/sukuk appears to be gaining investment interest. Wider yield pickup of circa 40-50 bps above MGS combined with tax remission benefits (at rate of 25% for corporates and 8% for life insurance companies) augurs well from an enhanced yield perspective.

 

Shah Aminudin bin Dato’ Md Akhir
Positive.
The lack of primary issuance lately has led to an increase in surplus funds in the market as a whole. Therefore, the excess of demand over supply has pressed the overall curve slightly lower. This is favourable for issuers to tap the market. I expect more new issuances and liquidity in the next coming few months which is good for revitalizing the market.

 

Kelly Ong
Positive.
The Malaysian bond market is very vibrant and local real money investors are always in need of good assets. Activities in the quasi-govvies have picked up a lot in recent months especially ever since the inception of GII into the Barclays Global Aggregate Index on March 31, 2015. I would expect this momentum to continue exponentially and the spreads between both the GII and quasi-govvies to converge to MGS.

 

Ho Su Farn
Neutral.
Factors that are driving the local bond market are the demand versus supply, external market forces coinciding with the crude oil prices and USDMYR movements. Hence, the bond market last year in my opinion was relatively vibrant compared to this year. Q-O-Q comparison (1Q2014 vs 1Q2015), we saw at least RM10.0 billion differential in primary issuances of PDS. The primary corporate bond space has been plodding along since the start of the 2015, with many investors continuing to be long on their cash positions. However coming to Q3/Q4, there will likely be a pickup in momentum on the primary issuances; the market will be anticipating the Feds reform on rates as regional/global market slowly stabilizes.

 

Emmy Ismail
Neutral.
With the US likely to raise interest rates in the second half of the year, the local market may see yields rising as a knee jerk reaction. However, given the ample liquidity locally and decent yield pick up relative to other markets in the region, the Malaysian bond market is likely to be well supported.

 

Philippines

 

Carlyn Dulay
Neutral.
The local bond market has been relatively quiet in the past few months as yields across the curve continue to track the movement in US Treasuries. Due to expectations of higher US rates towards the end of 2014, many market participants have opted to stay sidelined while awaiting more solid leads. The recent implementation of non-restricted trading, however, should be healthier for the market in the long term. Since tax-exempt bond holders can now freely trade with taxable investors, liquidity will be greatly enhanced, thus improving market pricing. This endeavour will also bring us closer to the realization of the government’s initiative to participate in an inter-ASEAN trading platform, creating an even healthier local bond market.

 

Angeline Sia
Neutral.
A steady monetary policy setting is expected for the rest of the year. Moderate inflation (the April headline CPI printed lower than expected) provides Bangko Sentral ng Pilipinas (BSP) flexibility to support growth in case the economic figures fall below target. On another note, the recent implementation of the non-restricted trading programme and talks of an upcoming bond swap are expected to enhance peso bond market liquidity. External developments however will continue to pose as a threat to the local bond market. Expect continued volatility in the coming months as we continue to perceive mixed signals with regard to the US recovery. Market players will continue to watch closely for remarks from the Fed regarding US monetary policy actions. An upward pressure on GS yields is inevitable as we all brace ourselves for a more hawkish Fed.

 

Mikael Pasimio
Slightly negative.
Currently, the Philippines finds itself in a good spot, with GDP and inflation expected to be stable over the next few years. As we approach another election year, GDP is expected to hover anywhere between 6.4%-7%. Also, the slowdown in global growth, which has been exacerbated by the free fall in oil prices from USD 100/ba, has prompted the institution of stimulus measures by Europe, China, Japan, and at least five other countries which should help keep Philippine inflation subdued.

That being said, the US economy is showing signs of rebounding and is projected to start hiking rates by September this year. This in turn, should put upward pressure on local rates, especially given the high correlation between US Treasuries and local govies over the past year and a half. All in all, the preemptive rate hikes and increase in reserve requirement that the BSP implemented last year, the launch of the Non Restricted Trading Environment, as well as the planned initiatives that are scheduled to take place within the year (bond swap and interest rate corridor) should cap the retracement of yields and should only result in a slight bear flattening of the curve.

 

Kathlynn Ann Lopez
Neutral.
Though relatively rich in valuation, the Philippine peso bond market still remains attractive to investors because of the country’s strong macroeconomic fundamentals. The high growth rate, solid external balance sheet, increasing USD remittances and BPO receipts, strong government cash position, and still easing inflation makes Philippine assets appealing. The abundant liquidity and stable Philippine peso appreciating against its emerging market peers, also support our local bond market. However, given the forecast of a US interest rate hike within the year, the Philippine peso bond market has been trading in a cautious stance of late, like the other rates markets. The market volume has been decreasing since late last year, but we believe the initiatives of the Bureau of Treasury to conduct another bond swap and the implementation of the non-restricted trading environment will help spur market activity.

 

Cristina Arceo
Neutral.
Inflation will remain benign while the external easing monetary condition supports the low rate environment. Moreover, with the non-restricted trading in place, the market can potentially become bigger with the new flows. On the other hand, the expected US hiking cycle by the second half of the year will put pressure on local rates while tighter regulatory conditions, such as higher capital requirements, can dampen the risk-taking appetite.

 

Stephanie Yang
Neutral.
Given the low inflation environment, BSP has room to keep rates steady for the remainder of the year despite the easing pressure seen in most Asian countries. However, BSP has also re-iterated that they may take their cue from the Fed with respect to future policy movements. A more drastic than expected path of normalization in US rates could therefore prompt a rate hike sometime in Q4.

While local fundamentals remain intact, the market has not been immune from external developments and volatility is expected to persist. Central bank divergence will likely still to play a part in the global search for yield and focus will remain on the stability of the US recovery and the subsequent pace of the rate hikes. Locally, the upcoming bond swap and pending implementation of the Liquidity Coverage Ratio in 2016 may provide some support and liquidity to temper the rise in yields.

 

Taiwan

Jay Hsu
Negative.
Companies do not want to issue Taiwan dollar bonds. First, companies in Taiwan have sufficient cash flow, so there is no need for them to be funded by issuing more debt. Second, in the future, the possibility of rising interest rates is very low. So companies are currently not eager to issue bonds. If there is a need for funds in the future they will start doing so. For these reasons, I am negative with regards to debt underwriting. Last year, authorities began to develop an international bond boards. Since the yields on these bonds are relatively high, investors prefer to invest international bonds.

 

Arthur Wu
Neutral.
The US Fed is expected to raise interest rates soon, while countries other than the US are still adopting a loosening monetary policy. In a tug of war between these different extreme monetary policies, the Taiwan CBC will maintain its neutral monetary policy for longer. Furthermore, the abundant liquidity and the Ministry of Finance’s intention to reduce refinancing costs by lowering the issue size of government bonds both strengthen investors’ buying interest in local government bonds despite the bearish news.

 

Bonnie Yu
Negative.
The US economy will recover gradually in the second half of this year while inflation data will be higher. US interest rates are expected to rise in September and Taiwan may follow after a quarter, it will be risky for the Taiwan dollar bond interest rate to follow the dollar bond interest rate. The Taiwan National Treasury Administration reduced the new bond issuance quota to keep the demand of long-term bonds steady, although this demand has been influenced by international bond issuance in Taiwan. There is still demand in the market for medium and short-term bonds. Banks have sufficient funds to buy these if the price is competitive. US interest rates may rise but at a slow pace and will not rise constantly. Taiwan dollar bond interest rates are still likely to rise gradually however they will fluctuate within a range. Investors should buy if the interest rate is high, but should be careful of the rebound risk when the rate is low.

 

Emily Hsiao
Negative.
The rebound of Taiwan dollar bond interest rates are limited after the FOMC meeting in mid-March, and selling off of international bonds in April. Apparently the interest rates are bottoming, market execution tends to buy in when the rates are high but sells off when it falls. This can also be seen from the five-year onshore interest rate swap and the spreads of Taiwan’s five-year bonds. The main reasons why Taiwan dollar interest rates cannot have a large upward correction currently are as follows: first, Taiwan’s central bank policy is currently fairly neutral, resulting in high liquidity in the market with low short-term rates. Second, there has been a reduction in the new bond issuance quota. The Taiwan National Treasury Administration tends to keep interest costs low for new bond issuance, which makes it difficult to short sell bonds. As Taiwan dollar interest rates always follow the international bond markets, we expect rates will slowly increase with the corrections of US dollar and Eurobonds, especially with the priced-in term premium of long-term bonds and the expectation of inflation. The fact that the fund crowding effect caused by the trend of international bond issuance will keep going, and that the curve has been steeper adds to our expectation that the Taiwan dollar interest rates will slowly increase and have a correction in June when the new five-year bonds start to be issued. In practice, I suggest buying when the rate is high or short sell on fixed payment interest rate swap.

Debbie Liu
Neutral.
Our outlook of the Taiwan sovereign bond market is neutral. Based on recent market news and fluctuations, the yield curve will keep steepening going forward. The yield of short-tenor bonds will be enhanced due to the ease of onshore funding; on the other hand, the long-end will continue its negative trajectory due to the massive amount of international bond issuance.

 

Sylvia Hsu
Neutral.
We believe the central bank in Taiwan will keep rates unchanged for the rest of 2015. Although the world economy is not strong, the market still expects the FED might raise rates at the end of the year. The ECB and BOJ still need to boost the European and Japanese economies with QE programmes. As a result of Taiwan’s weak economic growth, we believe trading volumes will remain within the range this year.

 

Thailand

Kobsidthi Silpachai
Negative.
We are expecting a bear steepening trend to continue for Thai bonds. While supply dynamics are favourable for bonds, the Bank of Thailand has set forth policies to weaken the currency in order to kick start exports and the overall economic growth. This would reduce the attractiveness of Thai bonds from the perspective of foreign investors.

 

Nithiwat Khoosuwan
Neutral/positive.
Ample local liquidity, low foreign holdings compared to neighbours, further deterioration in inflation expectations and the growth outlook being broadly lower, all support the Thai baht bond market. What Thailand really needs now to boost the economy is to kick-off all public investment projects in its pipeline, which I believe will help drive the growth momentum of private investment as well.

 

Supong
Ninsuvannakul
Positive.
Every year presents a new challenge for us as participants and market makers of the Thai baht bond market. The next 12 months will be an interesting time to see how the market reacts to even lower yields, relative to last year. Other than seeking offshore investments, where yields have also been hampered by the falling swap curve, local investors may be more open to explore other alternatives onshore. This could be an exciting year for a more mainstream acceptance of newer instruments like Basel III-compliant Tier 2 hybrid or convertible debt. For corporate primary issuances, I expect more private placement deals with smaller sizes as issuers are also being cautious while interest rates may continue to move lower. Government bond supplies are expected to remain stable and will continue to be well-supported by both a growing onshore investment base and continued interest from offshore investors.

 

Chut Trakoolngam
Negative.
Although onshore THB liquidity is (and will be) abundant, THB bonds are expected to be on the verge of interest rate increase within the coming months. The Fed should hike (maybe this year) and some capital reallocation should occur. Also, some mega government infrastructure projects should be able to start and contribute to our economy sooner than later. I view the Thai economy as slowly recovering, not contracting.

 

Editor’s Note: These award-winning individuals are presented in rank order. Their responses were gathered in April and May 2015.