SINGAPORE: Asia's stronger balance sheets and better economic outlook will see the yield-premium investors demand to own the region's debt versus United States bonds shrink, Pacific Investment Management Co (Pimco) predicts.
Sectors to watch include energy, financials and high yield, where corporate issuance since December 31 set a record with 76 new deals totalling more than US$30.4 billion (RM97.96 billion), the fund manager said in its latest Asia Credit Perspectives report.
The extra spread investors demand to hold Asia dollar bonds has fallen 25 basis points this month to 333 basis points, Bank of America Merill Lynch indexes show. That compares with a three basis-point fall to 152 for debentures from US companies.
"The region enjoys decent rates of growth which exceed much of the developed world," said Raja Mukherji, the Hong Kong-based head of Asian credit research at Pimco.
Developing nations in Asia are forecast to expand almost four times faster than developed economies in 2014, according to International Monetary Fund world growth estimates released in July.
The last several years have seen some extraordinary growth in Asian credit markets and ongoing trends, including supply and demand dynamics, banking sector deleveraging and increasing demand for energy across the region paint a vivid picture for credit investment opportunities, Pimco said.
Borrowers in Asia outside Japan sold some US$93.1 billion of US dollar-denominated bonds this year versus US$84.1 billion the same period of 2012, according to data compiled by Bloomberg.
Issuance ground to a halt in June after the Federal Reserve signalled it may begin tapering stimulus.
News last week US policymakers won't pare their quantitative-easing programme has sparked an issuance revival with companies, including China National Offshore Oil Corp, China General Nuclear Power Holding Corp and Sri Lanka's DFCC Bank, planning sales.
Woori Bank Co sold US$500 million of 2.875 per cent 2018 bonds yesterday, while Bangkok Bank Pcl raised US$500 million selling similar-maturity 3.3 per cent notes, data compiled by Bloomberg shows.
A lack of US dollar-denominated sovereign supply as countries increasingly prefer to issue debt in their own currencies, investor demand for yield and companies looking outside their traditional banking relationships for financing will ensure bond offerings from the region remain robust, said Pimco.
"These three factors have opened a huge window for Asian corporate issuers to come to the market for financing," said Robert Mead, a portfolio manager at Pimco and the report's co- author. Bloomberg