Bonds Show Boring Is Better in China

As stock markets in China tank, bond investors are sitting pretty.

As the charts show, a Bank of America Merrill Lynch index composed of China’s riskiest dollar bonds is up 6.4 percent this year, 1 percent of that delivered since the nation’s benchmark equity gauge began its stunning descent June 15. The Shanghai Composite Index sank 3.3 percent to 3,785.57 at the midday break, extending the drop from its peak three weeks ago to 27 percent and trimming gains this year to 17 percent.

“Asia credit, unusually, has been resilient” as investors elsewhere scale back their exposure to riskier markets, said Singapore-based Owen Gallimore, a senior credit analyst at Australia & New Zealand Banking Group Ltd.

A separate Bank of America Merrill Lynch index that tracks investment-grade notes from China has held steady as stock markets there implode, and for the year has returned 1.6 percent.

It really is testimony to bonds’ importance in any portfolio, according to Ashley Perrott, the head of pan-Asia fixed income for UBS Global Asset Management Ltd.

“Bonds have a role to play within that mix in providing regular and stable income,” he said. “That’s true no matter what countries’ markets we’re talking about.”

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