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The Asian credit market started 2023 on a strong note but the rally lost some steam in February when stronger than expected US economic data fuelled increased rate uncertainty. However, compared to other fixed income asset classes, Asian credit has been resilient with spreads tightening year-to-date despite higher treasury yields having chipped away at returns.
We remain optimistic on the outlook for Asian credit considering where valuations are, and expect the asset class to be further boosted by strong technicals, and tailwinds from China’s reopening. Solid corporate fundamentals in Asian investment grade helps to support stable income generation and good risk-return potential. We see good opportunities in financials, and selected Chinese technology and Industrial names.
Opportunities in high yield, but selectivity is key
In high yield, we see increasing opportunities, although a cautious and selective approach remains key, especially amid an environment of higher-for-longer rates. China reopening continues to be a theme we are exploring within our portfolios. Greater China Consumer, Macau gaming, and selected China property names are expected to benefit from the normalisation of economic activity and mobility in China. Volatility from the recent Adani saga has also presented several interesting opportunities in Indian credits.
What to expect in Asia credit moving forward?
While rate concerns and idiosyncratic events may drag on performance in the near term, we believe investors should look past this volatility and stay the course. We will reiterate that while it is difficult to time the peak in yields, current yield levels in Asian credit already offer highly compelling carry and a healthy cushion for potential downside risks and volatility.
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