Asian bonds will still be the choice investment for investors who are looking to grow their wealth, said Ooi Boon Peng, chief investment officer of Fixed Income from Eastspring Investments (Singapore) Limited.
The CIO, who was recently in Brunei for the 9th Annual Brunei Darussalam Roundtable, organised by Asia Asset Management, said that while long-term bonds is not an easy thing to predict, based on the overall breadth and depth of the market, Asian bonds should increase.
"This means that there will be more liquidity, more players, and the trend is in place and governments want to get it done," he said, adding that some governments may do a better job and certain governments may not, but the growth of more issuances will continue. The challenge for Asian investors is that savings rates are too high and companies generally have a lot of cash, so bond issuance will not be as robust as it can be, but it will continue to give a steady return.
Ooi said that the Asian bond markets in Thailand and Malaysia still provide moderately high yields of between 3.5 and four per cent, which by global standards, the CIO said, is still "quite attractive". High yield bonds of seven to 7.5 per cent 10-year bonds which Indonesia currently has would be in the high-yield sector. The Philippines, Ooi said, would fall into the moderate four plus per cent yields. "It used to be higher yielding, but it has come down now," he said. Singapore's 10-year bonds is yielding about 2.2 per cent, which is on the low side, but Ooi said that people will still buy it because they believe that the Singapore currency will appreciate over the long term.
Collectively as a region, South East Asian bonds would be yielding about 3.5 to 3.8 per cent depending on what the equal weight of the region is. He said that in 2015, they may not change the yields derived from the South East Asian bonds mainly because unlike the Eurozone, ASEAN countries do not have a single currency and the interest rates will still be different.
Ooi explained that unlike Europe, which has the mobility of labour and capital to help boost potential GDP, the ASEAN region will still hold on to their own currency, systems, governments and legislative systems. "Each country has its own set of competitive issues, and the currencies will behave in a way so interest rates cannot be the same," he said.
The CIO expects countries to benefit the most from the 2015 ASEAN Economic Community (AEC) to be countries that are the more prepared for it. "So those prepared for it usually have policies in place, such as Thailand, which claims to be ready, and also Singapore, as we always are," he said.
With China internationalising, their bond market is expected to grow in breadth and depth. Ooi also said that Korea is currently the most liquid Asian market, but they will continue to grow "fairly strong". "Taiwan yields are very low, because of their aging population," he said.