The eurozone crisis is encouraging investors to look to pumping cash in to Asian Pacific bonds, say financial experts.
The continuing difficulties of the single currency have seen Asian bonds hit a peak in 2012 – and they suggest 2013 could be even better.
And most of the money that is heading to the Asia Pacific is going in to long term bonds.
Rajeev De Mello, head of Asian Fixed Income at merchant banker Schroder’s, also points to the US ‘fiscal cliff’ as another sign that investors are looking to Asian bonds for security.
“Asian bonds give attractive returns in a low-yield world, plus the region’s currencies have stabilised and some will appreciate gradually next year,” he said.
“In terms of the amount of bonds issued, this has been a record year. With investors buying for the long-term, there’s no reason why this cannot continue.”
Investors searching for yield
Investors will increasingly search for yield, especially since no change is expected in America’s low rate policy and Asia’s growing bond market is one of the few places offering yield, explained De Mello.
Asia’s bond market is growing fast, and though it’s nowhere near as big as the bond market in Europe or the USA, it is setting new records – particularly in corporate bonds.
Merchant bank Standard Chartered believes that number of Asian bonds could triple over the next five years.
Asian companies with strong balance sheets are leading the way as they increasingly looking to tap in to bond markets for investment.
And, according to De Mello, Asian global corporate bond issuances doubled last year’s figure to $100 billion – a new record high.
To put that figure into perspective, the European bond market saw around $900 billion worth of deals this year – though this is the lowest figure for issuance since 2003.
Worries over bubble
However, corporate bonds have boomed with companies taking advantage of low interest rates and the opportunity to build up their cash reserves.
But it’s not all good news and some banking experts say the influx of western cash into the bond market could lead to a ‘bubble’ for investors.
Even the Asian Development Bank says investors should tread warily and that the growth of Asia’s bond markets isn’t necessarily a sign that the region’s economies have matured.
The bank says most Asian yields have been in decline since the summer and there are concerns over weak growth in some countries, especially over China’s slowing economy.
They also point to low inflation issues in South Korea, the Philippines and Thailand which have cut interest rates.
