Charting Opportunity in Emerging Asia: Robust Debt Issuance Meets Strong Local Demand

Charting Opportunity in Emerging Asia: Robust Debt Issuance Meets Strong Local Demand
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Charting Opportunity in Emerging Asia: Robust Debt Issuance Meets Strong Local Demand

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Debt markets in emerging Asia have grown more than fivefold by market capitalization since the turn of the decade, and local investors are buying a growing share of new issuance, as the chart shows. Many of the issuers are first-time “debut issuers,” which means the bonds may offer a decent new-issue premium to investors.

Emerging Asia debt is higher-rated on average (in the high BBBs) than issuance in the rest of emerging markets (averaging low BBBs), and strong in-region demand means that over the past couple of years around 75% of new emerging Asia bonds have been placed with Asian investors. These buyers tend to be more familiar with the market and issuers and are more likely to add to their holdings during periods of weakness.

These factors create strong technical support for emerging Asia debt and also make the region more resilient to U.S. dollar liquidity withdrawal than other emerging markets.

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Past performance is not a guarantee or a reliable indicator of future results. Investing in foreign-denominated and/or -domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets.  Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2018, PIMCO.