Asian debt now a mainstream asset class, says fund manager

Thursday 16th February 2012

Investors should view Asian debt as a mainstream asset class and not simply as a subsection of the global bond universe, according to a leading fund manager.

Chia-Liang Lian, manager of the £737m Legg Mason Western Asset Asian Opportunities Fund said Asian debt has gradually established itself as an asset class in its own right in recent years, although investors have yet to assess the region’s paper accordingly.

Rather than being a peripheral part of the emerging market bond universe, Lian believe Asian debt is now asserting itself as a mainstream asset class for international and regional investors alike.

Lian says that investors should reconsider the relevance of indices for strategic allocation. He says global bond indices traditionally tend to be heavily weighted towards developed markets, particularly to the West as well as to Japan.

However, the shift away from the G7 in recent years has yet to be reflected in many benchmarks. Furthermore, the trend away from the G7 comes at a time when sovereign rating trajectories are demonstrating a similar divergence.

Moreover, with Asian economies having outpaced developed countries by about 6% on average over the past decade, there has been significant build-up in external surpluses across the region.

“A decade ago, just three of the 10 largest Asian economies were rated A or above by S&P,” says Lian. “Today this ratio has doubled to six, with Hong Kong and Singapore rated AAA.

“Meanwhile in Western Europe, where countries were uniformly rated A or higher 10 years ago, ratings are now distinctively more mixed and even the best quality sovereigns are now vulnerable to downgrades as we’ve seen in the last couple of weeks.”
 
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