Ask The Experts: Situations In Europe Could Benefit Asian Bonds
Joep Huntjens, Senior Investment Manager at ING investment Management comments on the impact of the unsettling events in the developed nations to the Asian hard currency bond market.
The situation in the US has improved significantly as unemployment drops and housing starts picks up. Joep expects that the GDP in US will grow by 2.3% this year, and 2.6% in 2013, and sees the impact of growth of the US to Asia is minimal.
However, Joep thinks that Europe presents a different case. First, while the region is expected to experience slow growth in this and the coming years, there will be lower exports from the Asian countries to Europe, which can be a huge impact to Asia; but fortunately, the Asian economies are now less reliant on exports, and the trend is expected to continue in the coming years.
Secondly, the European bank sector is in the midst of asset deleveraging, and this implies a tighter credit condition in Asia. As weaker companies will find it more difficult to attract funding, the funding cost will go up for the corporate sector. Hence they may look to increase funding via the bond market.
Third, on the technical side, the worst scenario would be a breakup of the eurozone following a disorderly default in Greece, which may lead to a decline in risk appetite for riskier assets like the Asian bonds.
Joep sees strong fundamentals in Asia as a whole, and at the same time valuations are attractive and spreads are driven higher. Compared to other regions, Asian bonds are attractive at this point of time. The risk however, is that any headwinds to the global financial system will have a bigger impact on Asia than on other regions, hence the Asian bond market would experience lower liquidity and higher volatility in times of crises.
1. With the unsettling events in the developed nations, what's the outlook for Asian hard currency bonds?
2. What are the key items investors should take note of when they consider investing in Asian bond market this year?
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