From tactical to strategic asset allocation

Asian bonds

Introduction

The Asian bond1 asset class has evolved from a short-term tactical play to a strategic long-term investment case for any forward-thinking global asset allocation decision maker. The Asia ex-Japan block shows robust fiscal conditions, with potentially higher growth prospects than developed markets. Strengthened credit worthiness and a large cushion of foreign reserves support the notion that the asset class is worthy of inclusion in an investor’s global asset allocation as a long-term investment.

The Asian bond market (ex-Japan) has grown rapidly since 1997 to about US$8.5 trillion as of 30 June 20142, delivering a better risk-adjusted return than most other asset classes over the past decade while maintaining indications of potential continued growth and strong returns. While the asset class is diversified and most Asian countries and territories are of investment grade quality, it remains under-represented in global bond indices. Asian bonds notably offer investors direct access to the booming Chinese bond market.

1 “Asian bonds” refers to “Asian bonds (ex-Japan)” throughout this text.
2 Asian Development Bank, JP Morgan indices, Manulife Asset Management.

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