Emerging Asia ex-China bonds have beaten their developing-nation peers this quarter, and this outperformance looks set to continue even if US interest rates keep rising.
Regional securities have fared better even though their emerging-market counterparts have had the benefit of monetary easing as central banks start cutting rates. There are multiple factors working in favor of Asian notes including a lower correlation to US yields, support from resilient currencies and disinflationary pressures exported by China.
While the rapidity of the rise in US yields is challenging bond investors globally, “in Asia, there is a cold counter-cyclical wind coming from China, which has a much more significant impact on emerging Asian economies that supports the local bond markets,” said Rajeev De Mello, a Geneva-based global macro portfolio manager at Gama Asset Management SA.
In contrast, central banks in Indonesia, Philippines, Thailand, Malaysia, India and South Korea are forecast to keep rates unchanged this year, according to economists surveyed by Bloomberg. Still, an average of 10-year benchmark yields from emerging Asia ex-China has risen 21 basis points this quarter, less than the 26 basis points gain recorded in EMEA and 53 basis points increase in Latin America, according to Bloomberg calculations.
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