(Bloomberg) -- Asian dollar-bond investors have more of an appetite recently, and are favoring the safest fare amid the U.S.-China trade tensions.
Orders for dollar bonds in the region outside Japan returned to July’s level of 4.7 times their issuance sizes last month, after August saw the weakest demand this year, according to data compiled by Bloomberg. September orders for high-grade debt rose to the highest in three months and 67% of sales were in this category, the biggest proportion this year, the data show.
Corporate fundamentals in Asia remain on solid footing and valuations for Asian dollar bonds are particularly compelling at the moment versus the U.S. and the negative yields in Europe, said Paul Lukaszewski, head of corporate debt for Asia and Australia at Aberdeen Standard Investments.
Emerging-market bond funds saw five consecutive weeks of inflows and hard-currency funds were the main beneficiaries, according to a Barclays note citing EPFR data.
After suffering their first loss in a year on high yield bets, Asian bond investors took a measured approach toward adding risk. Demand for investment-grade bonds rose to 5.7 times last month, compared to 4.2 times for junk peers.
“Investors have pocketed generally decent return year-to-date in the Asia dollar bond market,” said Jenny Zeng, co-head of Asia-Pacific fixed income at AllianceBernstein. “Hence we are also turning more conservative for the rest of the year and going up the credit curve,” she added.
Some investors are shrugging off concern toward riskier debt and see the junk bonds sell-off in August as a buying opportunity.
“People overreacted to U.S.-China tensions and growth uncertainty in China,” said Jean-Charles Sambor, deputy head of emerging market debt at BNP Paribas Asset Management. “China high-yield names tend to be under-researched by global investors as access to information is overall more difficult which creates some mispricing opportunities.”
Thu Ha Chow, a portfolio manager at Loomis Sayles Investments Asia, said she has increased allocation to more defensive and higher quality BB and BBB-rated bonds. “We believe weaker credits attacked by idiosyncratic factors will be an on-going theme going into next year as growth slows,” she said.
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--With assistance from Shawn Qiu and Rebecca Choong Wilkins.
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