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Asia Credit Spreads Look Rewarding

By Advisor Perspectives
Financial Services

Asia credit spreads are wide, while U.S. credit spreads are narrow. What accounts for this difference?
In response to the global financial crisis of 2008, the U.S. Federal Reserve and European Central Bank launched massive quantitative easing (QE) that has lasted for the better part of a decade. This artificially inflated money supply continues to distort credit spreads for U.S. and European high yield debt, making it harder for investors to earn attractive returns in these asset classes. In contrast, Asia’s central banks largely avoided QE, allowing credit spreads to be shaped by market forces. Across Asia today, credit spreads for corporate bonds look rewarding for long-term investors.

What factors contribute to the stability of Asia’s credit markets?
Asia’s credit markets benefit from several layers of stability at the country level that are often lacking in other parts of emerging markets. Macroeconomic factors providing a tailwind for Asian corporate bonds include political stability, economic strength, reasonably balanced current accounts, low debt-to-GDP ratios, strong FX reserves and central bank independence. Macroeconomic risks remain, of course, and market conditions can change quickly, particularly in emerging markets. As active managers, we seek to identify and manage these macro risks through our fundamental, proprietary research process.

Read more at Advisor Perspectives.

Photo: Thomas

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