Viewpoints

Q2 2024 Update from the Asia Trade Floor

What is driving the performance of the Asia credit market? Join the discussion between Asia portfolio manager Stephen Chang and credit product strategist Jingjing Huang.

More from this section

Read Transcript

Text on screen: Jingjing Huang, Credit Product Strategist

Jingjing Huang: Hello, I’m Jingjing Huang, credit product strategist. Today, I’m delighted to have portfolio manager Stephen Chang here to discuss the latest developments in the economy and markets, and what they mean for you.

Text on screen: Stephen Chang, Portfolio Manager, Asia

Stephen Chang: Thanks for having me, Jingjing. There's certainly plenty to discuss.

Jingjing: Absolutely, Stephen. Let’s start with the Asia credit market, it has done well this year, especially high yield bonds. One of the key Asia High Yield benchmarks has increased in value by almost 7% from the first of January to the start of April. What has been driving this performance?

Stephen: The fundamental outlook and sentiment for high yield names outside the property sector has noticeably improved. Asia credit spreads have tightened by about 50 basis points for the overall market and 200 basis points for high yield, outshining most global credit benchmarks.

When spreads tighten, it means that the difference between what these bonds pay, compared to very safe investments like government bonds, has gotten smaller. This usually signals that investors feel more confident about the market, since they are willing to accept less excess return for taking on greater risk. This tightening of spreads has been a major contributor to the excess returns for the Asia credit market.

Text on screen:

Asia credit spreads have tightened. What does this mean?

  • Credit spread = the difference between the interest paid on bonds that have a low level of risk, such as government bonds, and the interest paid on those that have a high level of risk
  • Spread tightening usually signals that investors feel more confident about the market

Jingjing: Although that has also led to tighter valuations.

Stephen: That is true. However, even though these bonds are more expensive now, there's another factor at play. We're not seeing as many new bonds being issued, which could imply less technical pressure for spreads to widen significantly.

Another factor contributing to the outperformance of Asia Credit benchmarks is their shorter duration compared to global counterparts, which means they are less affected by changes in interest rates while benefiting from economic expansion.

Additionally, there is an interesting pattern we’ve noticed in Asia: when interest rates go up, spreads tend to tighten. This trend is driven by demand from yield-seeking buyers within the region. It helps to keep the market stable and supports strong performance.

Text on screen:

Why Asia credit benchmarks have outperformed this year

  • Tightening of spreads
  • Less sensitive to interest rate changes
  • Demand from yield-seeking investors

Jingjing: What is our outlook for the Asia credit market?

Stephen: In general, we expect a more stable market ahead, given the strong technicals and still low supply in the new issue market. The market’s appetite for risk appears to be returning.

We remain focused on maintaining a relatively more resilient portfolio and more diversified exposure towards broader Asia, while also keeping a bias for caution in the weaker sectors and flexibility given the market isn’t pricing much volatility, despite geopolitical risks and election uncertainties.

Jingjing: It sounds like we're navigating the Asia credit market with a balanced approach. Shifting gears a bit, PIMCO recently shared its outlook for the global economy and markets. Could you highlight a few key takeaways?

Stephen: Yes indeed, we recently published our latest outlook for the next 6 to 12 months, aptly titled “Diverging Markets, Diversified Portfolios”. We believe that the global investment landscape is set to produce more dispersed returns in the months ahead, as the trajectories of major economies diverge more noticeably.

While many large, developed market economies are slowing, the U.S. has maintained its surprisingly strong momentum, with several supportive factors poised to persist. It looks like an economic soft landing remains achievable in the U.S., with current market pricing suggesting a low likelihood of recession.

However, we think risks of both recession and renewed inflation remain magnified in the aftermath of unprecedented global shocks to supply and demand, along with varied government and central bank responses.

Text on screen:

Key takeaways from PIMCO’s latest outlook on the economy and markets

  • Global investments expected to produce more varied returns, as the paths of major economies increasingly diverge
  • U.S. exceptionalism may persist amid global stagnation
  • Risks of recession and renewed inflation remain high

Jingjing: What about emerging markets, what's our view on the opportunities and challenges there?

Stephen: In our view, emerging market debt offers an attractive source of steady returns and diversification amid supportive global economic and monetary policy conditions.

That said, there will be differentiation among the many countries in the emerging market space.  We see more attractive opportunities in economies where central banks have been ahead of the curve and for those with local rates that enjoyed a real yield advantage versus those in developed markets. We believe the best way to benefit from emerging markets right now is by investing in some of these currencies.

Jingjing: Thank you, Stephen, for your sharing, and thank you to everyone who joined us today. Stay tuned for more updates as we navigate these complex markets together with you. Goodbye!

Filters: Reset All

Filters

Close Filters Dropdown
  • Tags

    Reset

    Close
  • Category

    Reset

    Bond by Bond
    Careers
    Economic and Market Commentary
    Investment Strategies
    PIMCO Foundation
    PIMCO Education
    View from the Investment Committee
    View From the Trade Floor
    Viewpoints
    Education
    Close
  • Order By

    Reset

    Alphabetical
    Most Recent
    Close
() filters applied

Multimedia Finder

Filter By:
  • Bond by Bond
  • Careers
  • Economic and Market Commentary
  • Investment Strategies
  • PIMCO Foundation
  • PIMCO Education
  • View from the Investment Committee
  • View From the Trade Floor
  • Viewpoints
  • Understanding Investing
  • A
  • B
  • C
  • D
  • E
  • F
  • G
  • H
  • I
  • K
  • M
  • N
  • P
  • R
  • S
  • T
  • W
  • Y
  • Z
Clear
Berdibek Ahmedov
Product Strategist
Andrew Balls
CIO Global Fixed Income
Justin Blesy
Asset Allocation Strategist
Meredith Block
ESG Research Analyst
Marcio Bogoricin
Head of Global Wealth Management, Asia ex Japan
Allison Boxer
Economist
David L. Braun
Portfolio Manager
Jelle Brons
Portfolio Manager, Global and U.S. Investment Grade Credit
Nathaniel Brown
Director of the PIMCO Foundation
Erin Browne
Portfolio Manager, Asset Allocation
Grover Burthey
Portfolio Manager, ESG
Libby Cantrill
U.S. Public Policy
Yishan Cao
Credit Research Analyst
Kenneth Chambers
Fixed Income Strategist
Stephen Chang
Portfolio Manager, Asia
Devin Chen
Portfolio Manager, Commercial Real Estate
Richard Clarida
Global Economic Advisor
Mathieu Clavel
Portfolio Manager, Alternative Credit
Tony Crescenzi
Portfolio Manager, Market Strategist
Harin de Silva
Portfolio Manager, Special Situations
Pramol Dhawan
Portfolio Manager
Matt Dorsten
Portfolio Manager, Quantitative Strategy
Jason Duko
Portfolio Manager
Devin Ekberg
Senior Consultant, Advisor Education
David Forgash
Portfolio Manager
Preeyam Gandhi
Strategist
Max Gelb
Product Strategist
Nick Granger
Portfolio Manager, Quantitative Analytics
Adam Gubner
Portfolio Manager, Distressed Debt
Jingjing Huang
Strategist
Daniel H. Hyman
Portfolio Manager
Daniel J. Ivascyn
Group Chief Investment Officer
Mark R. Kiesel
CIO Global Credit
Erica Kinsella
Product Strategist, ESG Strategies
Sean Klein
Head of Client Business Strategy – Client Solutions and Analytics
Kristofer Kraus
Portfolio Manager
Jason Mandinach
Head of Alternative Credit and Private Strategies
Kyle McCarthy
Alternative Credit Strategist
Lalantika Medema
Alternative Credit Strategist
Mohit Mittal
CIO Core Strategies
John Murray
Portfolio Manager, Global Private Real Estate
John Nersesian
Head of Advisor Education
Roger Nieves
Sonali Pier
Portfolio Manager, Multi-Sector Credit
Georgi Popov
Product Strategist
Gavin Power
Chief of Sustainable Development and International Affairs
Lupin Rahman
Portfolio Manager
Graham A. Rennison
Quantitative Portfolio Manager
Steve A. Rodosky
Portfolio Manager
Jerome M. Schneider
Portfolio Manager
Marc P. Seidner
CIO Non-traditional Strategies
Emmanuel S. Sharef
Portfolio Manager, Asset Allocation and Multi Real Asset
Greg E. Sharenow
Portfolio Manager, Commodities and Real Assets
Kimberley Stafford
Global Head of Product Strategy; Responsible for Sustainability Oversight
Jason R. Steiner
Portfolio Manager, Private Lending and Opportunistic Strategies
Christian Stracke
President, Global Head of Credit Research
François Trausch
CEO and CIO of PIMCO Prime Real Estate
Matt Tuten
Portfolio Manager
Megan Walters
PIMCO Prime Real Estate
Qi Wang
CIO Portfolio Implementation
Jamie Weinstein
Portfolio Manager, Corporate Special Situations
Paul-James White
Portfolio Manager
Tiffany Wilding
Economist
Jerry Woytash
Portfolio Manager, Short-Term Desk
Nelson Yuan
Kirill Zavodov
Portfolio Manager, Real Estate
Mike Cudzil
Portfolio Manager
PIMCO
Ben Bernanke
Chair, Global Advisory Board
Seray Incoglu
Portfolio Manager, Commercial Real Estate
  • Alphabetical
  • Most Recent
Section : Date : Experts :
Reset All
Capitalizing on Diverging Global Economies
Positioning Portfolios Across Global Asset Classes (video)
Exploring the trends and opportunities in private credit today
Introducing PIMCO’s Balanced Income and Growth Strategy (P-BIG) (video)
Get Ahead: Term Out Your Assets (video)
Preparing for Diverging Economic Paths (video)

Load more results Load {{cCtrl.fetchResults}} more results