Asia fixed income performance (MoM and YTD)
Asian bond portfolios – short-duration USD investment grade (IG) credits favoredOur preference for short-duration IG credits last year has been well rewarded, as these credits outperformed major Asian bond benchmarks. Resilience in choppy markets, coupled with reasonable yields, still makes this section of the market the best risk-adjusted opportunity in Asian credits. IG spreads have widened more than what credit fundamentals justify and are expected to tighten going forward. We expect Treasury yields to gradually rise. In such a scenario, short-duration (1–3 year) Asian corporate bond portfolios should return an appealing 5% in 2019.
USD corporate high yield (HY) – China policy stimulus a key supportAsian HY corrected last year on the back of the slowdown in Chinese economic activity and trade concerns. However, the ongoing fiscal and monetary stimulus measures in China are expected to support the economy. Improving economic activity and inexpensive valuations are likely to balance out concerns about trade, the CNY, and refinancing. A more dovish Fed and a stable USD will lend further support. We continue to maintain selectivity and favor issuers with stronger balance sheets and shareholders. Our total return forecast for 2019 is 7%.
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