Manulife Investment Management believes Asia remains attractive within emerging markets amid the economic slowdown that's expected to continue and hit a trough later this year, which is then likely to be followed by a gradual recovery, according to the company’s biannual Global Intelligence report.
Sue Trinh, managing director of global macro strategy at Manulife said Asia's expected growth rate of 5.1% this year continues to incite envy in the developed world. Asia also occupies the quality end of the emerging-market universe, making it more appealing to investors. Trinh notes however that Asia is not immune to the global economic slowdown.
Asia’s recovery is constrained
"As the world's growth engine, the path to Asia's economic recovery has enormous relevance to investors, but recovery is constrained by numerous headwinds to growth and governments' ability to continue with monetary policy,” she says.
The report also highlights that negative-yielding debt represents a sea change in the investable fixed-income market, creating undesirable effects for investors, banks and policymakers alike. "We have now officially entered an alternate fixed-income reality," said John F. Addeo, CFA, global CIO of fixed income. “The incapability of traditional monetary policy, including near-zero rates, in stimulating economic growth is the primary driver for negative yields, in our view."
Investor demand for income causing bond prices to rise
Beyond policy rates, ongoing quantitative easing by central banks is driving the prices of longer-dated bonds and pushing down yields. Moreover, investors' demand for income is bidding up bond prices as well.
Addeo said the scenario for lower-than-longer rates may continue as inflation rates remain below policy targets across many developed markets. Added to this are massive debt burdens, globalization, aging demographics and technology-related price deflation all applying downward pressure.
ESG interest growing in Asia
Meanwhile, market interest in sustainable investment in Asia is rapidly growing, said Keisuke Tsumoto, head of fixed income, Japan. "In Japan alone, assets owned in sustainable investment strategies quadrupled between 2016 and 2018, making the country the world's third-largest sustainable investing markets."
However, despite the improvement in corporate disclosure on ESG issues in Asia, datasets remain incomplete and inconsistent. This, in turn, presents a broad opportunity for actively managed sustainable Asian fixed-income strategies.
