The region’s top bond investors are split on whether a global recession is imminent. While 53% of Astute Investors taking part in a recent survey conducted by Asset Benchmark Research expect global headwinds to trigger a recession, 47% do not. However, those who expect a recession see it looming close. Just under half (43%) predict it will strike in the next 12 months, while 53% forecast within two years.

There are certainly several serious risk factors. Despite the recent truce between Presidents Trump and Xi Jinping at the G20 Summit earlier in June, almost half of the respondents (49%) cited the US-China trade war as the most urgent concern in the coming 12 months. The fact that the truce - the second in six months - did nothing to boost confidence among respondents during the survey period is highly significant. Indeed, respondents’ concerns became more pronounced immediately following the IMF’s move on June 5 to trim its forecasts for economic growth in China (see graph).

The second most prominent concern among investors is the economic slowdown in China (10%), and the weakening local currencies (8%) and which is also related to the tensions between Trump administration and Beijing.

Among the respondents who expect a global recession to be triggered, 96% of them anticipate the recession to emerge within two years.

Although geopolitical and economic concerns cloud the horizon, three quarters of respondents have a very positive (14%) or positive (62%) outlook for their local currency bond  market in the coming 12 months.

One of the possible explanations is that investors are increasingly expecting dovish central bank policies. “A flat or lower growth in GDP is already priced into the market. The next important question is how the central bank will act? The hawkish monetary policy will deteriorate the matured-growth US economy, so I do not expect the Fed to hike rates anymore. I expect the rate cut about 50-75 bps within Q1/2020,” says Surasi Chongchaiyo, Director of Investment at National Saving Fund in Thailand. Indeed, three out of four investors are expecting central banks cut interest rates further in the coming 12 months.

The survey, in which 302 investors shared their views, was conducted between 3rd June and 28th June.

To view the rankings of the most Astute Investors in Asian local currency bonds by country, please click here.

To find out more about Asset Benchmark Research and our Asian Local Currency Bond Benchmark Review, please click here.