Analysts warn investors over rush into bonds

The investment tide has not yet turned from bonds to shares, but the change is not far off, say market watchers and analysts.

For the moment, however, investors continue to pile into Asian high-yield bonds in "surprising" numbers, although some fund managers say the trend is not expected to be sustained.

Market specialists warn that capital could be blindly enthusiastic about emerging-market junk bonds, whose yields have fallen to records low of about 7 per cent. They say there is a high capital loss risk for junk bond holders, given those yield levels and limited demand in the secondary market, once the funds flow turns strongly to equities.

"The general appetite among our clients now is into equities," said Victoria Ip, the Asia-Pacific chief investment strategist at Merrill Lynch Global Wealth Management. "I don't think there will be too much of a capital return from those junk bonds."

High-yield bond issuance by mainland firms hit a record US$5.7 billion this month. Issues by Hong Kong firms so far are on par with the record level recorded in October 2010, according to Dealogic data.

Fourteen mainland and two Hong Kong companies rushed to take advantage of record low fundraising costs. They were mainly property developers. Cheung Kong also joined the fray, raising US$500 million.