According to Bloomberg News, foreign investors are using an odd asset class—emerging Asian bonds—to survive the current global market turmoil.
This week, inflows into South Korean bonds were the highest in eight months. Conversely, those into Indonesian bonds were at their highest level since January. During that time, foreign investors also bought securities in Thailand and India.
Investors Dealing with the Global Banking Crisis
Due to the massive swings in Treasury yields over the past ten years, investors seek alternative tax shelters. They want to resist the repercussions of the global banking crisis. Amid the turbulence, developing Asian bonds may have benefited from resilient currencies and indications of an inflation peak.
“Emerging Asia bonds provide a temporary refuge as they are relatively calm and better shielded at this juncture,” said Winson Phoon, the Singapore-based Maybank Securities Pte’s head of fixed-income research. He further added, “They are also better insulated from the fallout arising from rising credit risk in the region unless the banking crisis deteriorates and global funding conditions tighten.”
The Outperforming Asian Debts
According to Bloomberg News, last week, developing Asian debt outperformed most of its international counterparts, rising 1.4%, which increased money managers’ interest in the region. In contrast, bonds from Europe, the Middle East, and Africa lost 1%, while South American securities declined roughly 2%.
Compared to all emerging markets, average price of five-year debt protection for developing Asian economies is roughly 83 basis points.
In recent days, emerging Asian currencies have held up reasonably well, which has helped keep bond yields stable. Last week, the top three emerging currencies were the Taiwan dollar, the South Korean won, and the Thai baht.
The significant downturn of real-money investors in the rising Asian currency region. They may have contributed to the outperformance, as per Morgan Stanley strategists.
Fundamentals of the economy also seem to favor emerging Asian debt. The regional economies’ inflation rates for February fell short of experts’ forecasts from Thailand-China to South Korea and the Philippines. It indicates that pricing pressures may have peaked.
Compared to Central Europe, the Middle East, Africa, and South America, Asia’s average inflation rate is low, according to analysts at Goldman Sachs Group Inc., including Andrew Tilton. Additionally, they noted that due to China’s reversed Covid policy, Asia’s growth is robust compared to other rising markets globally.
