Skip to main content
Manulife Investment Management Manulife Investment Management
中文

Fixed Income Strategy:
Asian Fixed Income

Discover why Asia is a market worthy of its own strategic asset allocation.

Strong economic fundamentals, attractive real yields, and an improved credit profile Learn More
Learn More

China’s rise in the global fixed income markets Learn More
Learn More

Structural changes in Asian fixed income Learn More
Learn More



Strong economic fundamentals, attractive real yields, and an improved credit profile

By accounting for 60% of the world's GDP growth rate and 40% of the world's population1, Asia possesses a credit profile that puts it ahead of other Emerging Markets (EM).

While most major Asian markets (except Vietnam) boast investment-grade sovereign ratings2 ; large EMs such as Argentina, Brazil, Russia, Turkey, South Africa have seen significant credit rating downgrades over the past decade3.

All the while, most of the Asian central banks’ prudent macroeconomic management of inflation has helped the region become a source of attractive real yields for sovereign debt.



Nominal and real sovereign yields of 10-year bonds in Asian and developed markets4




In contrast to the increasing negative-yielding debt in developed fixed income markets (which stands at more than US$15 trillion5 ), Asian bonds may stand out as the solution for forward-thinking investors seeking returns, higher real yields, and potential diversification benefits.





China's rise in the global fixed income markets

Over the past decade, China's onshore bond market has grown rapidly and became the world's third largest bond market; with have an annualised growth rate of 16.6% p.a. over the past five years – doubling in size6.

Despite its rapid growth, the bond market remains relatively closed, with foreign ownership (onshore bond market) at less than 3%7. However, this is changing as investors show increasing interest in its diversification opportunities and inclusion in major global bond indices.

With Bloomberg Barclays and J.P. Morgan's recent inclusion of Chinese bonds in their global indices, we estimate up to US$600 billion of passive money will flow into China's onshore bond market8.

Therefore, Manulife Investment Management is primed, being positive in China bonds (onshore local currency and offshore US dollar denominated) since October 2009.





Structural changes in Asian fixed income

In a deepened and widened Asian fixed income universe, the number and types of issuers have increased, boosting the market's overall liquidity and providing new investment opportunities.

Using the J.P. Morgan Asia Credit Index as an example9, its composition has evolved significantly since 2009. By broad sector, sovereign and quasi-sovereign issuers accounted for close to half of US dollar credit issuance in 2009; financials and real estate now account for around 40% of the index.



Asia credit now and then (by sector)10



It is clear that the overall Asian credit quality has improved. In 2009, 30.8% of credits from the index were below investment-grade, yet in 2019, the level has decreased to 23.3%, with 39.3% of credits now rated 'BBB'11 – a sign of improving quality in the region's credit universe.

On the demand side, the regional investor base for Asian credit has also evolved. Over the years, the investor base from Asia has grown, while the investors pool from the US and Europe has observed a decline.

This is reflected by the new issue allocation by region (80% of US dollar bonds issued in Asia in 2019 vs 44% in 2009)12. The strengthened regional investor base offers more stability for the asset class, particularly in times of increased volatility and potential risk of capital flight.



  1. Remark: 2019 projected GDP growth rate on a purchasing power parity (PPP) basis. Source: International Monetary Fund, 2019.
  2. Bloomberg, Foreign Currency Long-term Rating as of 30 June 2019.
  3. Bloomberg, as of September 2019.
  4. Manulife Investment Management, Bloomberg. Sovereign ratings based on the median rating between S&, Moody’s and Fitch, as of September 2019.
  5. Financial Times, 1 October 2019.
  6. Asia Development Bank, as of September 2019; Financial Times, 1 April 2019.
  7. China Daily, 2 April 2019.
  8. J.P. Morgan Chase and Company announced in September 2019 that it will gradually add Chinese sovereign debt into its GBI-EM global bond indices. The inclusion will commence on 28 February 2020, and roughly 1% of Chinese sovereign debt (as part of the total index) will be added monthly for a period of 10 months to its GBI-EM global diversified and narrow diversified indexes. Bloomberg Barclays announced that it will add Chinese RMB-denominated government and policy bank securities to the Bloomberg Barclays Global Aggregate Index - this will be phased in over a 20-month period starting April 2019. When fully accounted for in the Global Aggregate Index, local currency Chinese bonds will be the fourth largest currency component following US dollar, euro and Japanese yen. Using January 2018 data, the index would include 386 Chinese securities and represent 5.49% of the index.
  9. The J.P. Morgan Asia Credit Index (JACI) is a broad liquid US-dollar denominated Asia debt benchmark. It tracks total returns for actively traded US-dollar denominated debt instruments in the Asia ex-Japan region.
  10. Bloomberg, as of September 2019.
  11. Bloomberg, as of September 2019.
  12. Manulife Investment Management and UBS, as of 31 March 2019.
Learn More: Download fund brochure  
Disclaimer


Manulife Investment Management is the global wealth and asset management segment of Manulife Financial Corporation. This material, intended for the exclusive use by the recipients who are allowable to receive this document under the applicable laws and regulations of the relevant jurisdictions, was produced by and the opinions expressed are those of Manulife Investment Management as of the date of writing and are subject to change. The information and/or analysis contained in this material have been compiled or arrived at from sources believed to be reliable but Manulife Investment Management does not make any representation as to their accuracy, correctness, usefulness or completeness and does not accept liability for any loss arising from the use hereof or the information and/or analysis contained herein. Information about the portfolio’s holdings, asset allocation, or country diversification is historical and is not an indication of future portfolio composition, which will vary. Neither Manulife Investment Management or its affiliates, nor any of their directors, officers or employees shall assume any liability or responsibility for any direct or indirect loss or damage or any other consequence of any person acting or not acting in reliance on the information contained herein.

The information in this material may contain projections or other forward-looking statements regarding future events, targets, management discipline or other expectations, and is only as current as of the date indicated. There is no assurance that such events will occur, and may be significantly different than that shown here. The information in this material including statements concerning financial market trends, are based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. This material was prepared solely for informational purposes and does not constitute a recommendation, professional advice, an offer, solicitation or an invitation by or on behalf of Manulife Investment Management to any person to buy or sell any security. This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any investment products or to adopt any investment strategy. Nothing in this material constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. Past performance is not an indication of future results.

Investment involves risk. Investors should not base on this material alone to make investment decisions and should read the offering document (if applicable) for details, including the risk factors, charges and features of any investment products.

Proprietary Information – Please note that this material must not be wholly or partially reproduced, distributed, circulated, disseminated, published or disclosed, in any form and for any purpose, to any third party without prior approval from Manulife Investment Management.

This material is issued by Manulife Investment Management (Asia), a division of Manulife Investment Management (Hong Kong) Limited.

This material has not been reviewed by the Securities and Futures Commission (SFC).
504082

Copyright © 2019. Manulife Investment Management (Hong Kong) Limited. All rights reserved. Use of this website is governed by our Terms and Conditions.