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.
"There is a bond bubble going on. High-yield bonds by Chinese property firms attracted strong fund inflows recently, but it is not wise for investors to flock to such instruments as they are not compensated for the risk they are taking," said Gary Dugan, the chief investment officer in Asia and the Middle East for private banking group Coutts.
"Should, for example, Beijing introduce measures to slow house price inflation, some property developers' recently launched bond offerings could suffer high capital losses."
Last year, global investors pulled US$69.1 billion out of stock funds while pouring US$493.6 billion into bond funds, according to data provider EPFR Global. The situation looked very different this month - emerging-market bond funds took US$2.02 billion in new demand, just a third of the inflows into stock funds in the week to January 16.
Phillip Apel, the head of diversified fixed-income and rates at Henderson, said that as the equity market recovered, funds were flowing into shares.
Apel said the flow into bonds might not turn negative for now but could change if bond yields continued to fall.
Yields for bond products, including junk bonds, investment-grade bonds, and safe-haven treasury bonds, are at record lows. Yields on emerging-market high-yield bonds, for example, have fallen from 24.5 per cent in 2002 to only 7 per cent.