JPMorgan Asset considers crowded Asian credit “a little vulnerable”
(Bloomberg) – Asian credit markets will continue to attract capital inflows from the rest of the world, but in the near term, the investment grade sector could become a bit fragile, according to JPMorgan Asset Management.
Many areas offer the potential for strong returns given the higher yields on offer, but valuations can be stretched, according to Julio Callegari, senior portfolio manager for local rates and forex in Asia. Cautiousness returned to Asian dollar bonds as spreads widened by about 4 basis points this week, set for the first weekly increase since April, according to a Bloomberg Barclays index.
“It becomes less convincing precisely because people are coming into this particular market,” Callegari said of Asian credit. “It’s more crowded now, so that makes the market a little more technically vulnerable and that’s something I think investors should keep in mind.”
Central banks and governments have flooded the world with stimulus measures to counter the effects of the Covid-19 pandemic, which has helped prop up economies but also kept rates low in many places. A Bloomberg Barclays Index shows that there is currently about $ 15.5 trillion in negative yielding debt in the world.
Here are other views from Callegari:
- Love Chinese real estate as the country will continue to drive growth through infrastructure and urbanization, which will continue to support the market.
- Sees an opportunity in Indonesia because it is a good quality country that still offers attractive returns and is relatively well managed from a fiscal standpoint.
- India will become a more compelling story over time as it benefits from the relocation of the Chinese supply chain, progress in a land reform program, and the treatment of foreigners in the labor market.
- “We are more cautious in the hard currency space in India, we prefer more cautious sectors like utilities and we are biased looking to re-engage in the local space.”
- On the currency front, says his fund in the past often had around 25% currency exposure and is now around 12-13%.
- Believes that the appreciation of the Philippine Peso may not be justified by fundamentals, as the economy “collapses” and when it stabilizes there will likely be a pickup in imports.
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