investment viewpoints

a positive outlook for Asian credit in 2019.

a positive outlook for Asian credit in 2019.
Dhiraj Bajaj - Head of Asia Fixed Income

Dhiraj Bajaj

Head of Asia Fixed Income

We are optimistic on the outlook for Asia credit for the coming months and we have identified several key themes we believe will shape market activity over the course of the year.

Yields have started the year at elevated levels, leaving good room to run with the more accommodative stance from the Federal Reserve. We believe this more moderate tone from the central bank will set the tone for the Asian USD credit landscape in 2019.

Compared to Jan 2018, emerging markets (EMs) are starting off in a more comfortable position. Higher EM domestic rates, readjusted EM currencies, and fewer rate hikes from the Fed will likely allow EMs to focus on growth once again, albeit at a more moderate pace.

Additionally, the major shift in China’s stance towards policy loosening will likely lead to lower Chinese USD yields in our opinion. We expect the People’s Bank of China (PBOC) to further lower the capital requirements for banks, inject liquidity via various targeted lending facilities into the banking system, and to support capital raising at the large Chinese banks. All this will be supportive for macro growth, whilst various new initiatives are being put in place to provide alternative sources of funding for private sector firms. These include the development of the onshore asset-backed-securities market and introduction of a “enterprise bond” programme.

In Indonesia, macroeconomic prudence has been the highlight by the current administration and they are expected to outperform on their fiscal deficit targets in 2018 and 2019. We expect inflation to stay low, growth to be at around 5.4% and reform process to continue. The government remains committed to improving its business/investment environment, which should in turn encourage greater investments, exports, capital inflows and boost growth in the medium term.

We believe global funding markets for Indonesia to be wide open in 2019 on the local currency front, which will aid the Indonesian USD bond markets. Long duration Indonesian Investment Grade bonds started the year at elevated spread levels, and have good room to tighten given the macro backdrop. 

With regards to India, national elections due in April-May 2019 which could bring short-term volatility, but we believe fiscal consolidation has been widely accepted by the two major political parties. Overall, we consider that the Indian economy has generally continued to perform irrespective of election outcomes and Investment Grade bonds stand at attractive valuations versus global peers.

Overall, we expect Asian USD bond supply to be more lower and more diverse in 2019. Asian USD bond issuance has been the fastest growing major credit market globally, and recorded net issuance of over USD 140 billion in 2018, despite negative net issuance from Latin America and Central & Eastern Europe, Middle East and Africa (CEEMEA), as well as US and European HY bond markets. 

Net issuance this year is expected to be extremely low; down to levels last seen during 2011. Such reduced net supply is likely to provide a very strong technical backdrop for the Asian USD credit spreads to tighten, especially if demand for the asset class is higher with investor inflows. 

Overall, lower projected net new issuances in various segments of the market, China’s policy loosening, Indonesia’s macroeconomic prudence, removal of overhang from India’s national elections, and pent-up demand for emerging fixed income asset class, could add wings to a rally in 2019.


important information.

For professional investor use only.
This document is issued by Lombard Odier Asset Management (Europe) Limited, authorised and regulated by the Financial Conduct Authority (the “FCA”), and entered on the FCA register with registration number 515393
Lombard Odier Investment Managers (“LOIM”) is a trade name.
This document is provided for informational purposes only and does not constitute an offer or a recommendation to purchase or sell any security or service. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful. This document does not contain personalized recommendations or advice and is not intended to substitute any professional advice on investment in financial products. Before entering into any transaction, an investor should consider carefully the suitability of a transaction to his/her particular circumstances and, where necessary, obtain independent professional advice in respect of risks, as well as any legal, regulatory, credit, tax, and accounting consequences. This document is the property of LOIM and is addressed to its recipients exclusively for their personal use. It may not be reproduced (in whole or in part), transmitted, modified, or used for any other purpose without the prior written permission of LOIM. The contents of this document are intended for persons who are sophisticated investment professionals and who are either authorised or regulated to operate in the financial markets or persons who have been vetted by LOIM as having the expertise, experience and knowledge of the investment matters set out in this document and in respect of whom LOIM has received an assurance that they are capable of making their own investment decisions and understanding the risks involved in making investments of the type included in this document or other persons that LOIM has expressly confirmed as being appropriate recipients of this document. If you are not a person falling within the above categories you are kindly asked to either return this document to LOIM or to destroy it and are expressly warned that you must not rely upon its contents or have regard to any of the matters set out in this document in relation to investment matters and must not transmit this document to any other person. This document contains the opinions of LOIM, as at the date of issue. The information and analysis contained herein are based on sources believed to be reliable. However, LOIM does not guarantee the timeliness, accuracy, or completeness of the information contained in this document, nor does it accept any liability for any loss or damage resulting from its use. All information and opinions as well as the prices indicated may change without notice. Neither this document nor any copy thereof may be sent, taken into, or distributed in the United States of America, any of its territories or possessions or areas subject to its jurisdiction, or to or for the benefit of a United States Person. For this purpose, the term "United States Person" shall mean any citizen, national or resident of the United States of America, partnership organized or existing in any state, territory or possession of the United States of America, a corporation organized under the laws of the United States or of any state, territory or possession thereof, or any estate or trust that is subject to United States Federal income tax regardless of the source of its income.
Source of the figures: Unless otherwise stated, figures are prepared by LOIM.
Although certain information has been obtained from public sources believed to be reliable, without independent verification, we cannot guarantee its accuracy or the completeness of all information available from public sources.
Views and opinions expressed are for informational purposes only and do not constitute a recommendation by LOIM to buy, sell or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change. They should not be construed as investment advice.
No part of this material may be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorised agent of the recipient, without Lombard Odier Asset Management (Europe) Limited prior consent. In the United Kingdom, this material is a financial promotion and has been approved by Lombard Odier Asset Management (Europe) Limited which is authorised and regulated by the Financial Conduct Authority.
©2019 Lombard Odier IM. All rights reserved.