“[E]xpectation for a pick-up in inflation has driven bond investors to seek higher income,” said Alfred Mui, portfolio manager and head of Asian credit at HSBC Global Asset Management in a statement from the firm.
Mui’s Asia High Income Bond Fund aims to invest in bonds that provide higher-than-average yield with potential for capital appreciation, either in local or hard currencies.
A maximum of 45% can be allocated into high yield and non-rated bonds, and the indicative portfolio suggests a 40% allocation into these assets.
Modified duration is expected to be about 4.51 years, while a yield to maturity of 4.45%.
The fund is suitable for customers with a balanced profile who are prepared to take more risk to enhance the yield they may receive from Asian bonds, but do not want to go fully into high yield, the firm said.
Amid concerns such as higher interest rates in the US, leading to capital outflows from emerging markets and growing default risks, Mui said Asian credits are backed by improving fundamentals, strong demand from Chinese banks and limited supply.
Goldman Sachs Asset Management, however, told FSA recently that yield-hunting investors underestimate the growing risk in corporate credit.
Mui said that corporate high yield default rates in Asia are forecast to increase to 2% in 2017, a “manageable level”, compared to 1% last year and 3.1% in 2015.
On the demand side, “weaker Asian currencies should lead to increased demand for Asian US dollar credit for foreign exchange diversification”, he believes. “Increased participation from Asian investors should mitigate the impact from emerging market capital [out] flows.”
Mui also co-manages the HSBC Asian High Yield Bond Fund.
The three-year performance of the two existing HSBC GAM Asian fixed income funds versus their sectors, according to FE data: