Asian Bonds: A misunderstood opportunity


Aberdeen recently sat down with Mr. Michael to discuss Aberdeen’s views on the future opportunities and potential risks in Asia’s bond markets


By Anthony Michael, Aberdeen Head of Fixed Income – Asia Pacific


Q: Given the current market trends now taking place in developed nations, why should investors focus their attention on Asia? A: Much has been said recently about the current debt levels of developed nations. The debt crisis combined with the uncertainty over developed nations’ economic climate and reduced growth forecasts has placed the global economy in a clearly delicate state. Growth has slowed in both Europe and the U.S., and forecasts for 2011 and 2012 have been downgraded. All of this has turned investors’ to


focus on other markets with more fruitful opportunities. We believe that, without a doubt, developing Asia is the place to be when considering the optimal risk- return profile.


Q: Why have Asian economic fundamentals stayed attractive? A: For Asia, the real crisis was in 1997 – not 2008. Since then, companies and governments alike have focused on putting their balance sheets in order. In a large measure, that focus helped them avoid the global financial crisis. At the same time, China and India have emerged as important drivers of growth. In India, household spending has increased despite of inflationary pressures, underscoring the strength of its wage and employment dynamics. China’s infrastructure investment, especially in its social housing program,


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shows no sign of slackening. Attractive fundamentals for Asia have resulted in significant capital flows into the region. The challenge for Asian economies from here will be to manage inflation and limit the formation of asset class bubbles.


Q: Why do you feel Asian governments are better suited to withstand future global economic shocks? A: Asian government debt levels are generally much lower than those of the West. In fact, the projected debt levels of many of the Asian governments are expected to fall over the next five years. When evaluating the stress levels of both developed and emerging market nations over the last 18 months, the gap between the two is quite pronounced. Especially from a fundamental perspective, emerging markets prove far healthier than developed nations and the difference has never been wider. Additionally, Asia’s share of global GDP is


on the rise and as a group, developing Asia’s share is already ahead of both the U.S. and the E.U. We think the current trend of world GDP shifting eastwards will continue for the medium to long term. On the other hand, tightening monetary


policy, Japan’s disasters, the European debt crisis, the U.S.’ wrangling over the debt ceiling and subsequent rating downgrade, and most recently, fears about the global economy have combined to make 2011 a difficult year for Asian markets.


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