Asian Credit: where returns may actually match risk

9-7-2019

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​Nick Maroutsos, Co-Head of Global Bonds, sets out some of the reasons why Asia ex-Japan debt offers a potentially attractive destination for globally-minded bond investors.

 

For much of 2018, the allure of Asia ex-Japan bonds as a differentiated source of returns waned, while US yields grinded higher on the back of interest rate hikes by the US Federal Reserve (Fed) and expectations that Europe and Japan would eventually wind down their quantitative easing (QE) programmes. Subsequent developments, however, have breathed new life into the rationale for maintaining exposure to Asian debt. Slow growth forced Japan and Europe to delay monetary tightening and – after raising rates in December – the Fed pivoted to a more accommodative stance, sending Treasury yields lower across all maturities.

With 10-year Treasury yields at two-and-a-half-year lows, Asia ex-Japan debt can again be viewed as an attractive destination for globally-minded bond investors seeking to generate carry in a low return environment. This argument is further reinforced by the region’s sound fiscal position and the steady development of its capital markets.

It’s all relative

To be sure, with the exception of a few basket cases, bond yields are low globally. This is a reflection of growth concerns in what has become an extended economic cycle and the consequence of investors again being nudged towards riskier asset classes by persistently easy developed market monetary policy. As of mid-June, the yield on the Bloomberg Barclays US Aggregate Bond Index (US Agg) – comprised of government debt, investment grade corporate bonds and securitised debt – was 2.63%. A corresponding benchmark in the eurozone (Bloomberg Barclays Euro Aggregate Bond Index) yielded 0.25%, and the yield on a global benchmark (Bloomberg Barclays Global Aggregate Bond Index) was 1.58%. A broad Asia ex-Japan bond index (Bloomberg Barclays Asia USD Investment Grade Bond Index), on the other hand, yielded 3.36%.

While yields are higher in absolute terms, of greater importance is the amount of return an investor potentially generates per unit of risk accepted. For the US Agg, with a duration¹ of 5.78 years, each unit of risk – as measured by a year of duration – carries with it 0.46% of yield. In Europe, a year of duration is accompanied by 0.04% of yield, while in Asia ex-Japan, it is a much more palatable 0.63%.

A case for corporates

When one isolates investment grade corporates from the broader bond universe, this advantage is even more pronounced given the presence of the credit risk premium. Spreads on Asia ex Japan investment grade corporates were 156 basis points² (bp) over their respective benchmark as of mid-June compared to 126bp in both the US and Europe. On a yield-per-unit of risk basis, one year of duration in Asia ex Japan corporates is matched with 0.77% of yield; in the US and Europe, the figures for investment grade corporates are 0.44% and 0.16%, respectively.

Chart 1: Regional investment grade corporate spreads over risk-free benchmarks
4
Source: Bloomberg, as at 14 June 2019
 
Furthermore, many of the region’s corporations are linked to the secular themes that are fuelling economic growth and reconfiguring societies. For example, over the past five years, nearly 50% of the region’s investment grade bond issuance has emanated from the financial sector. Key drivers are an increase in personal banking and growing usage of retirement programmes and insurance products as the region’s population seeks to protect its newfound wealth. A more robust regulatory framework in the wake of the late 1990s Asian Financial Crisis increased bondholder protections, and the infrastructure of debt markets has improved. Insurance companies and pension funds have also created natural buyers for domestic debt, adding additional liquidity to capital markets.
 
While the financial sector and government debt dominate new issuance, other sectors have also increased their presence in bond markets, among them industrials, utilities and energy companies. Many of these are tied to the region’s infrastructure boom and are often backed by high value physical assets and, in many cases, implicit government support. Banking, infrastructure and the increasing spending power of the consumer – with consumer discretionary companies being another source of new bond issuance – are all components of the region’s multi-year effort to advance its economies. Given these tailwinds, along with improved corporate governance, we believe that the credit premium, or the additional yield commanded by investors for holding these bonds over government bonds, may overstate the risks attached to Asian corporate issuers. Consequently, the persistently higher spreads these securities have provided compared to their developed market peers reinforce the argument that this asset class can serve as a source of attractive risk-adjusted returns.
 
Maturing markets
 
As with the credit risk premium, the liquidity premium embedded in the region’s corporate bonds may not accurately reflect positive recent developments. An increasing base of domestic buyers, in addition to international investors on the hunt for yield, have added depth to erstwhile shallow markets and, in the process, drawn in additional investors previously concerned about liquidity. Inclusion in global benchmarks has further improved market function as passive strategies must increase exposure to the region to match its rising share in global benchmarks.
 
International investors often prefer to purchase bonds denominated in hard currency, and the market has evolved to meet that need. In the seven years leading up to 2017, investment grade bonds issued in G3 currencies (euro, US dollar and Japanese yen) rose more than fourfold to US$231 billion. And while issuance slipped in 2018, it still exceeded US$200 billion for the second year running.
 
Chart 2: Asia ex-Japan G3 currency bond issuance
3
Source: Bloomberg, annual data, as at 31 December 2018. Denotes issuance across all credit ratings.
 
China has dominated corporate issuance, representing nearly 60% of total investment grade issuance over the past five years, but other countries have also expanded their bond markets. South Korea, Hong Kong, Indonesia and India have each issued more than US$40 billion in investment grade debt over the past five years.
 
Rewarding fiscal discipline
 
The region’s relatively strong fiscal position also adds to the argument that the credit risk premium currently assigned to it is overblown. A risk of holding hard currency debt is the mismatch between currencies in which an issuer’s revenues are generated and obligations are paid. With a country’s fiscal position a potential weight on its currency, hard-currency investors must be mindful of macro factors when selecting regions in which to invest. But here, many Asian countries pass the test as their ratios of total debt to gross domestic product (GDP) fall well below those of developed markets.
 
Weaker – but resilient – in a global slowdown
 
The rumours of QE’s demise were greatly exaggerated. Again faced with low yields in home markets, investors are seeking value where available. Just as during the years following the Global Financial Crisis, the Asia ex-Japan region looks to be an important source of global growth – and of investment returns. Still, risks remain. Implicit in low yields is a slowing global economy. Given connected supply chains, Asia would likely not escape a downdraft. A slowdown, however, is not the same as a recession. And while growth may subside, the secular themes propelling the region’s growth are largely linked to the consumer and infrastructure, putting Asia at an advantage over commodity-producing regions that would more acutely feel the brunt of an end to the global economic cycle.
 
1Duration measures the sensitivity of a bond's price to changes in interest rates. The longer a bond’s duration, the higher its sensitivity to changes in interest rates and vice versa.
 
2Basis point (bp) equals 1/100 of a percentage point. 1bp = 0.01%, 100bp = 1%.

Dit zijn de visies van de auteur op het moment van publicatie en die kunnen afwijken van de visies van andere personen of teams bij Janus Henderson Investors. De genoemde effecten, fondsen, sectoren en indices in dit artikel vormen geen (deel van een) aanbod of verzoek om die effecten te kopen of te verkopen.

Resultaten behaald in het verleden vormen geen garantie voor de toekomst. Alle performancegegevens omvatten inkomsten- en kapitaalwinsten of verliezen maar geen doorlopende kosten en andere fondsuitgaven.

De informatie in dit artikel mag niet worden beschouwd als een beleggingsadvies.

Voor promotiedoeleinden.


Belangrijke informatie

Lees de volgende belangrijke informatie over fondsen die vermeld worden in dit artikel.

Janus Henderson Absolute Return Income Fund

For institutional/ sophisticated investors / accredited investors qualified distributors use only.

All content in this document is for information or general use only and is not specific to any individual client requirements. The information contained in this document is referential and may not be construed as an offer, invitation or recommendation or investment advice, nor should be taken as a basis to take (or stop taking) any decision.

Janus Henderson Capital Funds Plc is a UCITS established under Irish law, with segregated liability between funds. Investors are warned that they should only make their investments based on the most recent Prospectus which contains information about fees, expenses and risks, which is available from all distributors and paying agents, it should be read carefully. An investment in the fund may not be suitable for all investors and is not available to all investors in all jurisdictions; it is not available to US persons.  Past performance is not indicative of future results. The rate of return may vary and the principal value of an investment will fluctuate due to market and foreign exchange movements.  Shares, if redeemed, may be worth more or less than their original cost.

Janus Henderson Group plc and its subsidiaries are not responsible for any unlawful distribution of this document to any third parties, in whole or in part, or for information reconstructed from this document and do not guarantee that the information supplied is accurate, complete, or timely, or make any warranties with regards to the results obtained from its use. As with all investments, there are inherent risks that each individual should address.

The distribution of this document or the information contained in it may be restricted by law and may not be used in any jurisdiction or any circumstances in which its use would be unlawful.

Issued in Europe by Janus Capital International Limited (“JCIL”), authorised and regulated by the U.K. Financial Conduct Authority. Janus Capital International Limited (“JCIL”) is an entity registered and operating under the laws of the United Kingdom and Janus Capital Funds plc. is registered under the legislation of Ireland.

The extract prospectus (edition for Switzerland), the articles of incorporation, the extract annual and semi-annual report, in German, can be obtained free of charge from the representative in Switzerland: First Independent Fund Services Ltd (“FIFS”), Klausstrasse 33, CH-8008 Zurich, Switzerland, tel: +41 44 206 16 40, fax: +41 44 206 16 41, web: http://www.fifs.ch. The Swiss paying agent is: Banque Cantonale de Genève, 17, quai de l’Ile, CH-1204 Geneva. The last share prices can be found on www.fundinfo.com. For Qualified investors, institutional, wholesale client use only. Outside of Switzerland, this document is for professional use only. Not for onward distribution.

This presentation is strictly private and confidential and may not be reproduced or used for any purpose other than evaluation of a potential investment in Janus Capital International Limited’s products or the procurement of its services by the recipient of this presentation or provided to any person or entity other than the recipient of this presentation.

We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Janus Capital Management LLC serves as investment adviser. Janus, Intech and Perkins are registered trademarks of Janus International Holding LLC. © Janus International Holding LLC. For more information or to locate your country’s Janus representative contact information, please visit www.janushenderson.com.

Specifieke risico's

  • Dit fonds is ontworpen om slechts als één component van meerdere te worden gebruikt in een gediversifieerde beleggingsportefeuille. Beleggers moeten zorgvuldig het deel van hun portefeuille dat in dit fonds is belegd, overwegen.
  • ​Een emittent van een obligatie (of geldmarktinstrument) kan niet in staat of niet bereid zijn om rente te betalen of kapitaal terug te betalen aan het fonds. Als dit gebeurt of de markt ziet dat dit kan gebeuren, zal de waarde van de obligatie dalen.
  • Het fonds kan derivaten gebruiken om zijn beleggingsdoelstelling te bereiken. Dit kan resulteren in 'een hefboomwerking', wat een beleggingsresultaat kan vergroten en winsten of verliezen voor het fonds kunnen groter zijn dan de kosten van het derivaat. Derivaten brengen ook andere risico's met zich mee, in het bijzonder dat een tegenpartij van een derivaat, zijn contractuele verplichtingen misschien niet nakomt.
  • Als het fonds activa aanhoudt in andere valuta dan de basisvaluta van het fonds of u belegt in een aandelenklasse van een andere valuta dan het fonds (tenzij 'afgedekt'), kan de waarde van uw belegging beïnvloed worden door wisselkoersschommelingen.
  • Wanneer de rente stijgt (of daalt), zullen de prijzen van verschillende effecten anders worden beïnvloed. In het bijzonder dalen de obligatiewaarden doorgaans wanneer de rentetarieven stijgen. Dit risico is over het algemeen groter naarmate de looptijd van een obligatie-investering langer is.
  • Effecten binnen het fonds kunnen moeilijk te waarderen of te verkopen zijn op een gewenst tijdstip en op een bepaalde prijs, vooral in extreme marktomstandigheden waarin de prijzen van activa kunnen dalen, waardoor het risico van beleggingsverliezen toeneemt.

Risicoklasse

SRRI 2

Janus Henderson Absolute Return Income Fund (EUR)

For institutional/ sophisticated investors / accredited investors qualified distributors use only.

All content in this document is for information or general use only and is not specific to any individual client requirements. The information contained in this document is referential and may not be construed as an offer, invitation or recommendation or investment advice, nor should be taken as a basis to take (or stop taking) any decision.

Janus Henderson Capital Funds Plc is a UCITS established under Irish law, with segregated liability between funds. Investors are warned that they should only make their investments based on the most recent Prospectus which contains information about fees, expenses and risks, which is available from all distributors and paying agents, it should be read carefully. An investment in the fund may not be suitable for all investors and is not available to all investors in all jurisdictions; it is not available to US persons.  Past performance is not indicative of future results. The rate of return may vary and the principal value of an investment will fluctuate due to market and foreign exchange movements.  Shares, if redeemed, may be worth more or less than their original cost.

Janus Henderson Group plc and its subsidiaries are not responsible for any unlawful distribution of this document to any third parties, in whole or in part, or for information reconstructed from this document and do not guarantee that the information supplied is accurate, complete, or timely, or make any warranties with regards to the results obtained from its use. As with all investments, there are inherent risks that each individual should address.

The distribution of this document or the information contained in it may be restricted by law and may not be used in any jurisdiction or any circumstances in which its use would be unlawful.

Issued in Europe by Janus Capital International Limited (“JCIL”), authorised and regulated by the U.K. Financial Conduct Authority. Janus Capital International Limited (“JCIL”) is an entity registered and operating under the laws of the United Kingdom and Janus Capital Funds plc. is registered under the legislation of Ireland.

The extract prospectus (edition for Switzerland), the articles of incorporation, the extract annual and semi-annual report, in German, can be obtained free of charge from the representative in Switzerland: First Independent Fund Services Ltd (“FIFS”), Klausstrasse 33, CH-8008 Zurich, Switzerland, tel: +41 44 206 16 40, fax: +41 44 206 16 41, web: http://www.fifs.ch. The Swiss paying agent is: Banque Cantonale de Genève, 17, quai de l’Ile, CH-1204 Geneva. The last share prices can be found on www.fundinfo.com. For Qualified investors, institutional, wholesale client use only. Outside of Switzerland, this document is for professional use only. Not for onward distribution.

This presentation is strictly private and confidential and may not be reproduced or used for any purpose other than evaluation of a potential investment in Janus Capital International Limited’s products or the procurement of its services by the recipient of this presentation or provided to any person or entity other than the recipient of this presentation.

We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Janus Capital Management LLC serves as investment adviser. Janus, Intech and Perkins are registered trademarks of Janus International Holding LLC. © Janus International Holding LLC. For more information or to locate your country’s Janus representative contact information, please visit www.janushenderson.com.

Specifieke risico's

  • ​Een emittent van een obligatie (of geldmarktinstrument) kan niet in staat of niet bereid zijn om rente te betalen of kapitaal terug te betalen aan het fonds. Als dit gebeurt of de markt ziet dat dit kan gebeuren, zal de waarde van de obligatie dalen.
  • Het fonds kan derivaten gebruiken om zijn beleggingsdoelstelling te bereiken. Dit kan resulteren in 'een hefboomwerking', wat een beleggingsresultaat kan vergroten en winsten of verliezen voor het fonds kunnen groter zijn dan de kosten van het derivaat. Derivaten brengen ook andere risico's met zich mee, in het bijzonder dat een tegenpartij van een derivaat, zijn contractuele verplichtingen misschien niet nakomt.
  • Als het fonds activa aanhoudt in andere valuta dan de basisvaluta van het fonds of u belegt in een aandelenklasse van een andere valuta dan het fonds (tenzij 'afgedekt'), kan de waarde van uw belegging beïnvloed worden door wisselkoersschommelingen.
  • Wanneer de rente stijgt (of daalt), zullen de prijzen van verschillende effecten anders worden beïnvloed. In het bijzonder dalen de obligatiewaarden doorgaans wanneer de rentetarieven stijgen. Dit risico is over het algemeen groter naarmate de looptijd van een obligatie-investering langer is.
  • Effecten binnen het fonds kunnen moeilijk te waarderen of te verkopen zijn op een gewenst tijdstip en op een bepaalde prijs, vooral in extreme marktomstandigheden waarin de prijzen van activa kunnen dalen, waardoor het risico van beleggingsverliezen toeneemt.

Risicoklasse

SRRI 2

Janus Henderson Absolute Return Income Opportunities Fund

For institutional/ sophisticated investors / accredited investors qualified distributors use only.

All content in this document is for information or general use only and is not specific to any individual client requirements. The information contained in this document is referential and may not be construed as an offer, invitation or recommendation or investment advice, nor should be taken as a basis to take (or stop taking) any decision.

Janus Henderson Capital Funds Plc is a UCITS established under Irish law, with segregated liability between funds. Investors are warned that they should only make their investments based on the most recent Prospectus which contains information about fees, expenses and risks, which is available from all distributors and paying agents, it should be read carefully. An investment in the fund may not be suitable for all investors and is not available to all investors in all jurisdictions; it is not available to US persons.  Past performance is not indicative of future results. The rate of return may vary and the principal value of an investment will fluctuate due to market and foreign exchange movements.  Shares, if redeemed, may be worth more or less than their original cost.

Janus Henderson Group plc and its subsidiaries are not responsible for any unlawful distribution of this document to any third parties, in whole or in part, or for information reconstructed from this document and do not guarantee that the information supplied is accurate, complete, or timely, or make any warranties with regards to the results obtained from its use. As with all investments, there are inherent risks that each individual should address.

The distribution of this document or the information contained in it may be restricted by law and may not be used in any jurisdiction or any circumstances in which its use would be unlawful.

Issued in Europe by Janus Capital International Limited (“JCIL”), authorised and regulated by the U.K. Financial Conduct Authority. Janus Capital International Limited (“JCIL”) is an entity registered and operating under the laws of the United Kingdom and Janus Capital Funds plc. is registered under the legislation of Ireland.

The extract prospectus (edition for Switzerland), the articles of incorporation, the extract annual and semi-annual report, in German, can be obtained free of charge from the representative in Switzerland: First Independent Fund Services Ltd (“FIFS”), Klausstrasse 33, CH-8008 Zurich, Switzerland, tel: +41 44 206 16 40, fax: +41 44 206 16 41, web: http://www.fifs.ch. The Swiss paying agent is: Banque Cantonale de Genève, 17, quai de l’Ile, CH-1204 Geneva. The last share prices can be found on www.fundinfo.com. For Qualified investors, institutional, wholesale client use only. Outside of Switzerland, this document is for professional use only. Not for onward distribution.

This presentation is strictly private and confidential and may not be reproduced or used for any purpose other than evaluation of a potential investment in Janus Capital International Limited’s products or the procurement of its services by the recipient of this presentation or provided to any person or entity other than the recipient of this presentation.

We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Janus Capital Management LLC serves as investment adviser. Janus, Intech and Perkins are registered trademarks of Janus International Holding LLC. © Janus International Holding LLC. For more information or to locate your country’s Janus representative contact information, please visit www.janushenderson.com.

Specifieke risico's

  • Een deel van de of de volledige jaarlijkse managementkosten en andere kosten van het fonds kunnen uit het kapitaal gehaald worden, waardoor het kapitaal kan eroderen of de potentie voor kapitaalgroei kan verlagen.
  • Dit fonds is ontworpen om slechts als één component van meerdere te worden gebruikt in een gediversifieerde beleggingsportefeuille. Beleggers moeten zorgvuldig het deel van hun portefeuille dat in dit fonds is belegd, overwegen.
  • Als een fonds een hoge blootstelling aan een zeker land of zekere geografische regio heeft, draagt het fonds een hoger risiconiveau dan een fonds dat breder gevarieerd is.
  • ​Een emittent van een obligatie (of geldmarktinstrument) kan niet in staat of niet bereid zijn om rente te betalen of kapitaal terug te betalen aan het fonds. Als dit gebeurt of de markt ziet dat dit kan gebeuren, zal de waarde van de obligatie dalen.
  • Het fonds kan derivaten gebruiken om zijn beleggingsdoelstelling te bereiken. Dit kan resulteren in 'een hefboomwerking', wat een beleggingsresultaat kan vergroten en winsten of verliezen voor het fonds kunnen groter zijn dan de kosten van het derivaat. Derivaten brengen ook andere risico's met zich mee, in het bijzonder dat een tegenpartij van een derivaat, zijn contractuele verplichtingen misschien niet nakomt.
  • ​Opkomende markten stellen het fonds bloot aan hogere volatiliteit en een groter risico op verlies dan ontwikkelde markten; ze zijn vatbaar voor ongunstige politieke en economische gebeurtenissen en kunnen minder goed worden gereguleerd met minder robuuste bewarings- en afwikkelingsprocedures.
  • Als het fonds activa aanhoudt in andere valuta dan de basisvaluta van het fonds of u belegt in een aandelenklasse van een andere valuta dan het fonds (tenzij 'afgedekt'), kan de waarde van uw belegging beïnvloed worden door wisselkoersschommelingen.
  • ​Het fonds belegt in hoogrentende (niet van beleggingskwaliteit) obligaties en hoewel deze doorgaans hogere rentetarieven bieden dan obligaties van beleggingskwaliteit, zijn ze meer speculatief en gevoeliger voor ongunstige veranderingen in de marktomstandigheden.
  • Wanneer de rente stijgt (of daalt), zullen de prijzen van verschillende effecten anders worden beïnvloed. In het bijzonder dalen de obligatiewaarden doorgaans wanneer de rentetarieven stijgen. Dit risico is over het algemeen groter naarmate de looptijd van een obligatie-investering langer is.
  • Effecten binnen het fonds kunnen moeilijk te waarderen of te verkopen zijn op een gewenst tijdstip en op een bepaalde prijs, vooral in extreme marktomstandigheden waarin de prijzen van activa kunnen dalen, waardoor het risico van beleggingsverliezen toeneemt.

Risicoklasse

SRRI 5

Deel

Attentie