Asian bonds seen returning up to 10% in best year since 2012

SINGAPORE • Asia’s dollar-denominated bond market could return up to 10% this year on expectations that policy easing in the US and China will revive risk appetite, according to Lombard Odier Investment Managers.

The asset class has gained 2.4% so far this year in the strongest start since 2012, as buyers snap up bonds cheapened by a late-2018 sell-off. The market fell 0.6% in 2018, the first annual loss since 2013, according to an ICE BofAML index.

“Given the combination of Fed (US Federal Reserve) accommodation and China’s easing, we think investors can make anywhere between 5% and 10% in Asian credits,” Dhiraj Bajaj, Singapore-based money manager at the asset management unit of the Swiss private bank, said in an interview on Feb 14. The top end of that range would be the strongest returns since 2012, the ICE BofAML Index shows.

This year’s upturn has room to run amid pent-up demand from fund inflows and lower net supply of new bonds, he added.

Bajaj’s US$1.18 billion (RM4.81 billion) Asia Value Fund has returned 5.1% this year through Feb 13, beating 97% of peers. This year, he has added bonds issued by Hong Kong-based infrastructure group NWS Holdings Ltd and Indonesian power group PT Lestari Banten Energy.

Banten’s notes are secured against cashflows from a power plant co-owned by Malaysian conglome- rate Genting Bhd and Chinese energy giant SDIC Power Holdings Co Ltd, and the notes offer “attractive yield” of almost 7% for a defensive utility business, he said.

Bajaj said the greatest risk to this year’s debt rally would be complacency where investors chase returns by allowing poor quality borrowers to enter the bond market, or let them price bonds below fair value. There are “known risks” associated with potential surprises in elections in India and Indonesia, he added. — Bloomberg