With low yields in developed economies and an outlook of constrained growth globally, new research has found the flexibility and diversity of bonds have become an increasingly attractive option for investors with fixed-income portfolios.
A recent analysis by AllianceBernstein found that the Asian bond market in particular offers an attractive alternative for investors.
“Against a background of low growth and inflation in developed markets, Asian currencies may continue to benefit from foreign-investor inflows, although we suspect that policymakers in the region will take steps to prevent any significant currency appreciation,” the report’s authors, portfolio managers Brad Gibson and Jenny Zeng, and economist Vincent Tsui, said.
“From a top-down perspective, we see the risks to fixed-income investors in Asia as broadly balanced. Post Brexit, more interest rate easing is likely across the region, a positive for bondholders generally speaking,” they said.
According to AB, the outlook for the region is considered generally positive, given confidence that policy decisions should benefit bondholders.
“One of the risks we’re monitoring closely is that of significant fiscal expansion, which could increase government bond supply, potentially putting downward pressure on bond prices and upward pressure on yields. At this stage, we remain broadly comfortable with fiscal policy in the region.”
The report said AB would be looking beyond conventional countries in the region to less considered bond markets.
“On the basis of our bottom-up insights, we have initiated opportunistic positions in Mongolian US-dollar sovereign bonds and added exposure to Sri Lankan domestic bonds and currency at attractive levels,” the report said.
“With yields low and the outlook for global growth and inflation still subdued, the need for flexibility and diversity in fixed-income portfolios is more important than ever. For investors with appropriate risk profiles and research insights, Mongolian and Sri Lankan bonds offer intriguing possibilities.”
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