Following a strong showing in 2019, we expect Asia's fixed income markets to benefit from supportive investor sentiment as underlying economic growth in the region stabilises in 2020.
Developments that could shake up market sentiment this year include the US Presidential Elections, Brexit and ongoing trade-related disputes.
The coronavirus crisis has also prompted significant investor concern regarding Chinese demand in Q1 2020.
Although these events will elevate volatility in financial markets, credit markets still look attractive as risk appetite is likely to be supported by global liquidity.
In particular, we expect Asian high yield bonds to benefit from a stronger technical environment as supply normalises after a heavy 2019 pipeline.
Meanwhile, inflows to Asia should continue amid the ongoing search for yield across emerging markets. Spreads for Asian high-yield bonds are about double those for similarly rated US high-yield bonds.
They also tend to have a shorter duration than their US counterparts, resulting in lower interest-rate risk.
This asset class is suitable for investors with a higher risk appetite and those who are prepared to invest for the medium to long term.
Among Asian high-yield bond issuers, we favour Chinese property companies. The supply and demand picture for Chinese property bonds looks healthy, while average sales price and volumes are also supportive.
While onshore liquidity remains tight, property companies have relatively better access to funding and they can sell part of their land bank or projects if funding becomes challenging. Therefore, there is a lower risk of defaults.
For investors seeking lower volatility, high-quality Singapore dollar-denominated corporate bonds are another attractive option, offering relatively good yield compared with US dollar bonds.
Singapore dollar rates have declined by less than half of the drop in US Treasury rates in 2019, offering a better entry point for the Singapore dollar bonds at this point.
This asset class also benefits from relatively lower supply and high investor demand, keeping technicals supportive.
Joep Huntjens is head of Asian fixed income at NN Investment Partners
• Despite ongoing macroeconomic uncertainty, Asian credit markets should benefit from continued risk appetite this year
• High yield and Singapore dollar-denominated bonds are bright spots in Asian fixed income markets
• Asian high-yield bonds are only suitable for investors with a higher risk appetite
• Coronavirus crisis has prompted significant investor concern across asset classes