Diversification is the way to go, says HSBC
Filipinos, like most of their peers in Asia, have traditionally relied on domestic investments for their yields, and they have indeed reaped significant benefits from these.
But in the next few years, diversification into a basket of Asian fixed income instruments will be the way to go, according to visiting investment experts from HSBC.
“We appreciate that there’s going to come a point—and we’re watching this happen in this part of the world—where the wealth accumulation is happening at such a fast pace that the ability of the capital market to expand in that space, offering investors liquidity and diversification, is going to be challenged,” HSBC Global Asset Management (Hong Kong) Ltd. head of institutional business for Asia-Pacific Julie Koo said in an interview with the Inquirer.
Koo said interest on Asian fixed income assets has been increasing rapidly, partly driven by jitters over the eurozone.
But the favorable underlying fundamentals of regional markets justify the rates, Koo said, adding that the increasing volume of issuance was likewise making liquidity “more relevant and interesting” to global investors, even if the weighting of traditional bond indices was still heavily skewed in favor of the United States, developed Europe and Japan.
The farther away investors are from Asia, they tend to know less about the region.
Koo recommended that investors from Asia increasingly look outside their borders and appreciate ample opportunities within the region.
“Because credit quality is generally improving, with the notable exception of India, I think over the years the Asian markets will begin to compress into the higher echelons of the credit rating spectrum. If that happens, the opportunity in the next few years is great to see,” said HSBC Global Asset Management senior product specialist Geoffrey Lunt.
Lunt said global investors in low-yielding and cash-awash developed markets like Japan were now indeed looking to allocate more funds to Asian fixed income instruments on a “sustainable” basis rather than the “opportunistic” hot money or short-term portfolio investing.
For Philippine sovereign debt, Lunt said it’s no surprise that offshore Philippine cash bonds, or ROPs, were trading as if they were rated investment grade.
“It’s the candidate for investment grade status and because of the some of the qualities that it has as an economy, including a current account surplus, it’s a clear candidate for upgrade and that will continue to cushion the price of the bond,” he said.
But while it’s been great being invested in Philippine bonds, where HSBC has an “overweight” rating or a recommendation to allocate in excess of the benchmark bond index, Lunt said the yields have fallen so much that this should be taken by Filipino investors as a good signal to diversify and consider other markets in the region.
Asked which Asian markets HSBC was most upbeat on, Lunt said that in the medium to long term, all markets looked favorable.
“Tactically, we are long on Philippines and China. We are looking for entry points into India but we think the situation there is still volatile,” he said.
Because of the prolonged uncertainties in Europe, US Treasuries will continue to be deemed as a safe haven but even within Asia, Lunt noted that there were likewise some safe havens such as Singapore and Hong Kong.
In the years ahead, he said Asian economies may grow faster than the stock of debt available to investors, suggesting that the window of opportunity to invest in a diverse portfolio of Asian fixed income may narrow in the future.
British banking giant HSBC Global Asset Management has $430 billion worth of assets under management, 70 percent of which is in fixed income assets. In Asia alone, this HSBC unit manages $30 billion in fixed income assets, one of the largest in the region.
