Asian investment-grade credit is catching the attention of investors across the globe.
While Arthur Lau, Hong Kong-based managing director, co-head of emerging markets fixed income, head of Asia ex-Japan, fixed income, at PineBridge Investments, acknowledged investment grade across the globe is drawing investors, he said Asia has been a new focus.
He said the investment-grade sector in the region has a very low volatility characteristic, standing out in terms of Sharpe ratio even in comparison to the U.S.
Mr. Lau put Asia hard currency dollar bonds at 1.56 Sharpe ratio for the past five years vs. 1.11 for the U.S.
“Also in the last two years, Asia outperformed because of very low volatility. That is a major characteristic that Asia investment grade can offer to investors at the moment.”
Mr. Lau said the size of the Asian investible universe has increased “significantly,” to about $650 billion, compared with about $200 billion in 2009, and about 80% of that is investment grade.
Other managers have seen interest in Asia credit.
“The key takeaways from meetings I've had with institutional clients in Europe is that they are really feeling the squeeze of low core yields,” said Clifford Lau, head of fixed income, Asia Pacific, at Columbia Threadneedle Investments, based in Singapore. “At the last count, Asian investment-grade corporate U.S. dollar was trading around 210 basis points. That compared with European investment grade corporates, which have now been squeezed all the way down to 110 basis points, or even tighter. From that angle, easily you can get 100 basis points of spread pickup vs. European spreads,” he said.
Another layer to that spread story is that European investment-grade corporates are benchmarked to the risk-free rates in Europe, while Asian invest-grade securities are benchmarked to U.S. Treasuries.
With German 10-year bunds in negative territory, this is adding about 150 basis points in comparison.