Investors should take advantage of market volatility to buy undervalued Asian bank shares and corporate bonds, according to Aberdeen Asset Management Plc. (ADN)
The MSCI Asia Pacific Financials Index has dropped 16 percent since June 30 and the extra yield that investors demand to hold U.S. dollar-denominated bonds sold by Asian companies instead of similar-maturity Treasuries has risen 177 basis points since June 30 to 525 basis points, Bank of America Merrill Lynch data show.
Some bank stocks and corporate bonds are undervalued as a result, Hugh Young, head of Asian equities at Aberdeen, said at a media briefing in Hong Kong today. “We’re finding tremendous opportunities at the company level,” he said.
Volatility gauges surged globally as shares tumbled last month amid growing concern that a slowing Chinese economy and worsening European debt crisis will derail global growth. Hong Kong’s HSI Volatility Index jumped 53 percent in September, its biggest monthly gain in three years. The VIX, as the Chicago Board Options Exchange Volatility Index is known, surged 36 percent last month, while the VSTOXX Index, which measures the volatility in the euro zone, jumped 31 percent.
Risk Adverse Investors
About $10 trillion was wiped from the value of global equities in the third quarter. The Dow Jones Industrial Average fell 2.1 percent yesterday after German Chancellor Angela Merkel’s office doused expectations that a solution to the Greece’s debt will be reached at an Oct. 23 summit.
Risk adverse investors should buy Hong Kong and Singapore bank bonds to manage the volatility, Anthony Michael, Aberdeen’s regional head of fixed income, said at the briefing.
“They’re the ones that are going to pay a steady income stream as a conservative asset class in order to balance out the volatility from equities and commodities,” he said.
Investment-grade company bonds also represent good value as relative yields will narrow and high-yield notes present some attractive opportunities for investors that are prepared to hold debt for two to three years.
“If you really want to take a walk on the wild side, the industrial high-yield market is going to be one that you’ll have a close look at,” said Michael, adding that some of these bonds are trading at 75 cents on the dollar with an implied yield to maturity of up to 16 percent.