Following the significant repricing of markets that took place in 2018, we are now seeing the elements in place for strong performance across Asian interest rates, currencies and credit in 2019.
The key takeaway is that slowing growth in the US and a mild reacceleration in China bode well for emerging market assets.
A key difference between the two economies is that the stimulus in China will be more evenly split between infrastructure growth and the service sector as the country continues to stimulate through tax cuts, which should put more money into the service economies.
This bodes particularly well for Asia as it will benefit from a rebound in consumer discretionary spending such as travel.
While resource-rich Latin American countries such as Peru, Chile and Brazil will no doubt benefit, the boost might not be on the scale of what we saw in 2009 or 2015.
As we look ahead, we find US dollar-denominated debt of corporations in Asia appealing because the securities can be grounded in intrinsic value.
For investors with a long-term investment horizon of greater than three years, the total return potential for Asia credit offers a compelling opportunity at current levels.
In January, we saw a strong rebound in the high-yield segment of US dollar-denominated Asia bonds, with the J.P. Morgan Asia Credit High Yield index returning 3.4% in a single month.
This fast and furious rally will almost certainly slow and experience some volatility over the year.
However, the key point is this: even without price appreciation, Asia dollar high yield offers attractive total return.
From a sector perspective, we also see opportunities among Chinese property developers. While the overall Chinese real estate market is experiencing a slowdown, the stronger ones are gaining market share over the weaker ones.
We have therefore been adding to top 20 real estate developers that have prudent balance sheets, have prefunded this year's maturities and are gaining market share from weaker companies.
Our outlook for emerging markets in general is very constructive, particularly within Asia fixed income. Across interest rates, credit and currencies, the macro environment could provide a tailwind for Asia bonds.
Building portfolios from the bottom up, we will continue to look for the most compelling opportunities among the world's fastest-growing economies.
Teresa Kong is a portfolio manager at Matthews Asia