Corporate dollar bonds in India and Indonesia are the top performers in Asia’s fixed-income markets so far this year, in a sign of the growing appetite for riskier debt among global investors.

 

The yield compression in the global market and the relatively strong rupee and rupiah are helping boost performance for these corporate bonds, says Allianz Global Investors (AllianzGI) chief investment officer for fixed income Asia David Tan.

 

“In the context of negative and low interest rates the environment is more widespread. Both Indian and Indonesian corporate dollar bonds are among best performers in Asia so far this year and there’s still a lot of pickup based in some areas on the very low or negative interest rates. Both asset classes have attracted considerable interest from European investors in the wake of Brexit,” Tan says.

 

 

Flows into Asian emerging market fixed income amounted to US$11.0 billion as of July 2016 of which US$5.0 billion came from European investors following Brexit.

 

AllianzGi expects to remain overweight Indian and Indonesian bonds over the medium term. Apart from Indian and Indonesian bonds, Allianz is also investing in credits, specifically high yield bonds.

 

“High yield bonds average around 6% right now. From a sector perspective we rotate our high yield positions from Indonesia to China and elsewhere. As investors we are quite active. The moment we find any relative valuations that we find more attractive we will switch out and we’re doing very well. We’ve also been seeking a little of investment grade, but we’re still going for high yield,” Tan says.

 

As of June 2016, AllianzGI has a total of US$12 billion in fixed income assets managed in Asia Pacific accounting for 37% of its total portfolio in the region. Its global fixed income portfolio amounted to 204 billion euro accounting for 44% of the total assets under management during the same period.

 

Indian local currency bonds with five-year maturity currently yield 7.0%, while government 10-year bonds currently yield 6.85-7.0%. India has a credit rating of BBB- but analysts are expecting a credit rating upgrade to take place soon.

 

Indonesian local currency five-year bonds yield 6.8%, while government 10-year bonds yield 6.98-7.0%. Indonesia has a credit rating of BB- with stable outlook.

 

On the high-yield corporate bonds, Indian issues currently yield about 15% and Indonesian, 10%.

 

The yield of Indian and Indonesia bonds are substantially higher than those Asian US-dollar investment grade (IG) bonds at 3.4-6.2%, US-government five-year treasury notes at 1.2%, Italian five-year government bonds at 0.3%, UK government five-year bonds at 0.2%, Japanese five-year government bonds at -0.2%, French government bonds at -0.4%, German five-year government bonds at -0.5%, and Swiss 5-year government bonds at -0.8%.

 

In addition, the default rate of global emerging market, Asia (GEM) high yield bonds, to which India and Indonesia belong, remain the lowest in the world at 2% in 2016. The highest default rate for high yield bonds belong to Latin America, Middle East and North Africa (MENA) at 6.1%.

 

Globally, its active fixed income strategies include high yield bonds, convertible bonds, credit, aggregate, advance fixed income, and emerging market debt.