MORE investors across Asia-Pacific (Apac) are looking to increase their allocations to fixed income assets in the region, according to a report by State Street Global Advisors (SSGA).
The survey released on Tuesday (Sep 24) found that Apac investors plan to allocate nearly 46 per cent of their assets to fixed income over the next 12 months, higher than the 37 per cent from a year ago.
Marie Tsang, Apac fixed income exchange-traded fund strategist at SSGA, noted that the recent cycle of interest rate hikes has revitalised the role of bonds in generating income.
Breaking it down by geography, Apac investors are looking to allocate 28 per cent of their fixed income investments to Asia ex-Japan, 16 per cent to Japan, 14 per cent to North America, as well as 13 per cent to Europe.
“Apart from home bias, Asia’s robust economic backdrop is boosting Apac investor sentiment. The growing allocation to Asia ex-Japan fixed income among Apac investors underscores a growing confidence in the region’s fixed income markets as a source of stable returns,” said Tsang.
The survey was commissioned by the ABF Pan Asia Bond Index Fund earlier this year, gathering responses from 600 Apac-based asset managers and owners.
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In terms of motivation, 41 per cent of Apac investors said they are investing in bonds to generate income, 31 per cent are seeking diversification, while 30 per cent are spurred by sustainability-related goals.
Findings reveal that Apac investors lean towards fixed income investments with short to medium-term maturities. Sixty-four per cent prefer bond maturities of up to 10 years, with the six to 10 years range being the most popular (46 per cent). Only 7 per cent prefer bond maturities of more than 15 years.
Apac investors are also leaning more towards the higher end of the credit spectrum. For investing intentions in 12 months, 74 per cent said the lowest-rated bonds they are willing to hold are rated A and above. This is an increase from 66 per cent a year ago.
Surveyed investors are most optimistic about Asia bonds producing the best returns in 2024, with 36 per cent choosing Asia ex-Japan and 15 per cent voting Japan.
Ng Kheng Siang, Apac head of fixed income and head of Singapore at SSGA, explained that a possible reason for the increasing confidence in Asian fixed income is the markets are becoming increasingly investor-friendly, with many countries liberalising their capital markets and expanding their bond investor base through regulatory reforms and enhanced financial infrastructure.
He cited an example of the onshore Chinese bond market opening up significantly with Hong Kong’s support, through initiatives such as Bond Connect.
Although Apac investors are optimistic about the region’s fixed income performance, they have also expressed concerns primarily over recession (37 per cent) and inflation (37 per cent). These concerns are, however, allayed by the growth in local bond markets.
“Borrowers, from corporates to sovereigns, are shifting funding from US dollars to domestic markets, showing investor confidence. Additionally, ageing wealthy societies like Japan, South Korea, and Hong Kong prefer the safety of fixed income investments over equities, further supporting the region’s bond markets,” said Ng.
