PERSPECTIVE3-5 min to read

Video: Asian fixed income – where to position?

With Asia-Pacific economies expected to contribute about 70% of global growth in 2023, and the relative strength of Asian local currencies, we see a compelling case for buying Asian currencies outright versus the US Dollar, or positioning for relative-value currency opportunities within the region.

12/06/2023

Where are the key risks in Asian fixed income?

Risks are currently skewed to slower global growth, with a significant chance of the US entering some form of recession later this year as the lagged effects of Federal Reserve rate hikes and tighter credit conditions feed through to the wider economy.

Why does Asia look attractive?

Focusing on Asia, growth in the region should outpace other parts of the world. While Chinese growth so far has been underwhelming versus market expectation, we believe strong domestic consumption should enable the economy to grow at a respectable level, therefore providing a stable anchor for the broader Asian region.

According to International Monetary Fund (IMF) forecasts, Asia-Pacific economies are expected to contribute about 70% of global growth in 2023, a larger share than we’ve seen in the last couple of years.

Other sovereign credit metrics look robust in the region as well – government debt as a percentage of GDP has risen, but remains relatively low compared to levels in Western economies due to more fiscally prudent stances taken by most Asian governments. External balances are also strong, with current accounts looking healthy in most parts of the region, and FX Reserve buffers being built back up this year in many countries.

Asian fixed income

Do Asian currencies look attractive versus US Dollar?

We believe the relative resilience of Asia versus the US should be supportive for local currency. Many currencies in the region appear cheap relative to fundamentals, though the degree of mispricing is differentiated across countries. One currency we like fundamentally is the Indonesian Rupiah, which should continue to benefit from robust trade balances. The Rupiah is also attractive from a carry perspective, as is the Indian Rupee, given the relatively favorable interest rate differential.

For all of these reasons, we see a compelling case for buying Asian currencies outright versus the US Dollar, or positioning for relative-value currency opportunities within the region.

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