Investors are turning to Asia’s high-yield bonds and technology stocks in the search for higher levels of income.
Select Asian high-yield credit is attractive, such as Chinese real-estate debt from solid businesses with good access to funding, according to Pictet Asset Management. Taiwanese technology stocks are favoured by JPMorgan Asset Management and Principal Global Investors.
Income hunters are looking beyond safer debt and traditional dividend-paying equities that have been hurt by the pandemic. Almost $16 trillion of bonds globally offer negative yields after central banks drove down interest rates to fight the economic damage from the pandemic.
“We still see value in selected credits as a source of income generation, especially in Asian high yield where yield levels remain attractive in an historical context, said Vincent Ferraton, head of Asian credit research at Pictet Asset Management.
Credit spreads have compressed around the world, including in Asia. But the regions investment-grade dollar bonds pay premiums that are about 40 basis points higher than similarly rated US notes, while high yielding bonds command more than 200 basis points, according to Bloomberg Barclays indexes. Those levels are both above their five-year average.
Short-term sell-off
A selloff in Asian junk bonds this week sparked by concerns about a cash crunch at China Evergrande Group highlighted the extra risk that comes with high-yield debt. Some analysts see the China Evergrande drama as likely delivering a transient blow to sentiment rather than a bigger shock.
“I dont think it will develop into a systemic risk. The market reaction we saw may just be short-term and more on sentiment” said Banny Lam, head of research at CEB International in Hong Kong.
Among Asia's dividend-paying technology stocks, Taiwanese firms are unlikely to trim payouts significantly because of solid earnings, according to Tai Hui, chief Asia market strategist at JPMorgan Asset Management.
The estimated dividend yield on the MSCI Taiwan Information Technology Index is about 3.4% for the next 12 months, compared with approximately 2.4% for the Asia-wide counterpart. Both gauges were relative havens last month, posting gains despite a selloff in US tech shares.