A class apart: Asia credit emerges

Asia’s corporate credit market has grown significantly in recent years

2 Sept 2019

28 Minutes

Asia’s corporate credit market has grown significantly in recent years, becoming a prominent force within the emerging market fixed income investment universe. With approximately US$1.2 trillion outstanding, the market is now four-times the size of the European high-yield space and similar in magnitude to the entire emerging market hard currency sovereign bond universe, making it very worthy of investor attention.

Beyond its size and diversity, we believe it offers many attractive attributes to investors, underpinned by sound fundamentals, attractive valuations and an investor base less likely to be swayed by fluctuations in broader market sentiment. The result is the existence of a dependable and relatively constant source of demand in Asian credit markets that is less prevalent in other emerging market jurisdictions.

At the same time, the opportunity set continues to grow as Asian companies expand and strengthen. Default rates have historically been low, with recovery rates higher than for other emerging market jurisdictions. However, Asia does have its fair share of highly leveraged corporate issuers in challenging sectors and that while defaults remain rare, they still do occur, underscoring the need for investors to be active, vigilant and discerning.

Various factors, not least the domestic bias and relative inexperience of the current investor base, make Asia credit distinct. While this creates potential benefits for investors in terms of risk/return characteristics and portfolio diversification, a careful and selective approach underpinned by regional expertise is key to managing risk and harnessing opportunities, particularly given the increasingly volatile global backdrop.

Read more to find out what investors should know about Asia credit.