Macroscope | The Asian credit market is looking less attractive to investors, but value can be gained with some finesse
Jim Veneau says despite instability in the euro zone, the strengthening US economy and an over-supply of Asian bonds have made the Asian fixed income space challenging
Asian credit markets have begun to stabilise after a sharp sell-off, which began in mid-April and intensified during the first half of May. After a flat return in March, the JP Morgan Asian Credit Index (JACI) posted a -0.66 per cent return in April. It then fell a further 0.71 per cent through May 9 before rebounding. Through May 25, JACI’s return was modestly negative at -0.12 per cent.
The sudden and severe sell-off in April and early May has brought a return to relative value opportunities in Asian credit. What remains challenging is positioning for relative value without substantially changing overall portfolio risk levels. At a minimum, the spike in volatility argues for a continuation of cautious risk positioning at an overall portfolio level, but it also implies more opportunities for active portfolio management to generate performance with systematic and well-executed pair trades.
