(Bloomberg) -- BlackRock Inc., the world's largest money manager, expects returns for Asia dollar bonds to be in the mid-to-high single digits in 2019, as the region's corporate fundamentals remain strong.
“You don't really have a reason to be extremely cautious,” said Neeraj Seth, head of Asia credit at the firm. “I don't think you will see an uptick in the default rates in the region.”
Picks include:
- Asia high yield, on which it is overweight
- Large China state-owned enterprises, benchmark oil and gas names, and better quality high-yield real estate; the firm continues to hold on or add to those positions
- India, where the firm has moved from cautious to positive
- Indonesia, where it has moved from neutral to slight overweight
Underweights include:
- Philippines and Korea, driven by valuations
- Sri Lanka, due to political uncertainty
After a tumultuous 2018, when Asia corporate dollar notes lost 0.6 percent, the worst performance in a decade, fund managers are more bullish about those bonds. A sell-off in junk notes from the region has made them attractive in an environment where default rates are likely to stay low, according to Seth.
Yields on the notes remain near a seven-year high, according to a Bloomberg Barclays index. More dovish comments by Federal Reserve Chairman Jerome Powell in recent weeks and stronger than expected economic data from the U.S. have helped spur investor appetite for risk assets at the start of 2019.
BlackRock expects U.S. Treasuries to be more stable this year, and doesn't see catalysts for a further widening of credit spreads, according to Seth.
Private Credit
BlackRock also sees growing opportunities within private credit in India and China. The firm is looking to add headcount within this area mostly in India, according to Seth.
In India, the firm is looking to lend to companies that are stressed but performing. More owners are motivated to solve issues before reaching the insolvency process, according to Seth.
In China, the push to deleverage has curtailed the availability of credit, and opportunities to lend are starting to pick up, he said.
“Even the small cracks will lead to meaningful, sizable investment opportunities,” given China's size, Seth said.
To contact the reporter on this story: Denise Wee in Hong Kong at dwee10@bloomberg.net
To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Finbarr Flynn, Ken McCallum
©2019 Bloomberg L.P.
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