For investors accessing Asian local currency bond markets, uncertain US economic policy, the rise of protectionism and a global risk aversion towards emerging markets, are the top risks they face this year.
The findings of a recent survey of 207 fund managers conducted in the first quarter of 2017 show they are most concerned about unclear US policy. No surprise there.
“Any perceived US policy shocks would be negative for flows to Asia,” says a trader at a large global asset manager in Singapore, “Asian credit spreads, except Chinese credits, would likely tighten, tracking global equities.” A trader at a local fund house in Hong Kong is also vocal, “A tightening of US monetary policy will definitely cause more flows out of emerging markets.”
Some Asian investors are more optimistic than others. “There will be minimal impact to the ringgit,” a Kuala Lumpur-based head of fixed income says, “as the investors are largely local players”. Another domestic investor in Mumbai explains: “India may prove to be an oasis in the context of robust domestic consumption and under control inflation”.
The rise of economic nationalism is top-of-mind for managers of global fund houses based in Asia. “For Asian countries, they are very export-oriented,” the portfolio manager of the Hong Kong branch of a UK investment firm explains, “If there’s a high tariff to pay for imported goods from Asia this will severely impact these economies and their current account balance.”
Fund managers of international institutions are worried about the weakening of local currencies as a result of the economic slowdown. They stand to lose as they have the option to put money elsewhere. In contrast, Asian managers that have a domestic focus are more concerned with a generalized global risk aversion towards emerging markets.
When asked to rank the five options, managers ranked the above three risks before political and security risks in Asia and a hard Brexit.
The 2017 Asian Local Currency Bond Benchmark Review surveys local currency bond investors including asset managers, hedge funds, private banks, insurance funds and commercial banks from 11 Asian markets, namely China, CNH, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand.
Data sets include market penetration, market share/wallet share, buying criteria/client satisfaction, research content and the top individuals. To learn more about the Asian Local Currency Bond Benchmark Review please click here.
Additional reporting by Jacky Fung.