Investors expect ‘new normal’ in fixed income market
Investors are expecting ‘new normalisation’ across the fixed income asset class, with alternative credit becoming an important part of the market, according to Invesco.
The firm’s “Global Fixed Income Study”, which surveyed almost 80 institutional investors including 21 based in Asia pacific and with over US$1.2 trillion in assets, found that the expected ‘new normal’ would be defined mostly by modest growth, low yields, low inflation and ongoing central bank intervention.
At the same time, the study proved that Asian investors were less confident than their American and European peers as the sustained post-financial crisis of calm in fixed interest markets came to its end.
According to Invesco’s chief executive, Greater China, Southeast Asia and Korea, Terry Pan fixed income investors in Asia Pacific region tended to allocate to solutions that could either hedge interest rate risk or deliver superior capital appreciation and yield.
“Recent years have also seen growing interest from investors in alternative credit such as bank loans and emerging market bonds, and we expect this asset class will continue to be popular among Asia Pacific investors for the near future,” Pan added.
Additionally, fixed income investments became increasingly critical to Asia Pacific portfolios, with a higher proportion of those who increased allocation to alternative credit such as infrastructure and real estate debt (52 per cent) against only 10 per cent of those that decreased their allocation.
However, Asia Pacific investors still showed lower allocations to alternative credit than investors in Europe and the US, the study proved.
As far as the growth of global economy was concerned, Asia Pacific investors were less positive than their peers, with the regulatory challenges both at present and in the future quoted as the biggest concerns.
On the other hand, investors in the region were less concerned about low yields or aging population.
“Indeed, Asian investors and particularly Asian insurers face unique regulatory challengers, particularly around the C-ROSS regime which will affect the Chinese insurance market,” Pan said.
“Many insurers have large guaranteed books with high return requirements, and these guaranteed rates are higher than sovereign bonds yields, but regulation is meanwhile encouraging greater use of less risky debt instruments.
“This may explain the regional interest in alternative credit we noted from Asia Pacific survey respondents.”
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