Asian high-yield corporate bonds could return as much as 9 percent this year due to economic growth in the region, according to Aberdeen Asset Management Plc.
Investors should buy the debt even though yields relative to Treasuries have narrowed extensively, because the “macro backdrop is so fantastic,” Anthony Michael, head of Asia- Pacific fixed-income, said in an interview in Hong Kong. “The backdrop for corporates in this part of the world is for gross domestic product growth of 5 percent to 10 percent versus 1 percent to 3 percent in Europe and the U.S.”
Asian speculative-grade company bonds, rated less than Baa3 by Moody’s Investors Service and below BBB- by Standard & Poor’s, have returned 5.53 percent this year after returning 74 percent in 2009, according to JPMorgan Chase & Co.’s Asia Credit Index. The extra yield investors demand to hold the securities instead of Treasuries plunged 14.69 percentage points last year to 8.39 percentage points, the index shows.
Asian economies are expected to expand 6.9 percent this year after growing 3.5 percent last year, according to International Monetary Fund forecasts last month.
Aberdeen has more than $259.3 billion of assets under management globally.
If European leaders contain the region’s debt crisis and risk aversion declines, Asia’s junk bonds could potentially outperform equities this year, Michael said. Investor concern that fallout from Europe’s sovereign debt woes will spread and slow the global economy has routed stock, bond and currency markets this year.
Economic growth in Asia and lower government debt levels will lure people also to invest in sovereign bonds, according to Kenneth Akintewe, a Singapore-based bond-investment manager at Aberdeen.
“This crisis in Europe highlights what we have been saying all along, that the fundamentals in Europe are far worse than those in Asia and the need for global re-allocation will see Asia being a net beneficiary,” Akintewe said in an interview. “Asian households are less leveraged, corporates have better cash flows and government budget deficits are lower than in Europe and the U.S.,” he said.
The budget deficits of Asia’s developing economies average 4.5 percent of gross domestic product compared with 9.5 percent for the Group of Seven nations of the U.S., Japan, Germany, France, Canada, Italy and the U.K., the IMF estimated last week.