UOB: Asian credit markets to rebound this year

KUALA LUMPUR: UOB Asset Management expects Asian credit markets to rebound this year, supported by improving economic data and resilient corporate fundamentals, but China remains a key risk to the region due to hard-landing concerns.
According to its head of Singapore and Asia Fixed Income Chia Tse Chern, the Asian credit markets will typically do better after a poor year, which saw the total return dip by 1.4% in 2013.
"We expect the Asian credit markets to have tendency to strongly rebound in 2014, by registering high single digit growth in the base case, or even low double digit growth," he told a press conference in conjunction with the launch of UOB's United Trigger Bond Fund here yesterday.
Chia is still sanguine on the credit risk of the Asian bonds despite a big selldown last year and believes that the bond prices will gradually recover assuming there is no spike in default rate.
He stressed that among the emerging markets, Asian high yield bonds have the lowest default rate of 1.1%, demonstrating strong financial strength in Asian companies.
"There is no default recorded for investment grade bonds since the Asian financial crisis in 1997," he added.
The United Trigger Bond Fund is a close-ended fund which focuses on Asian bonds, with a targeted annual income distribution of 4.5% to 5%.
UOB Asset Management CEO Lim Suet Ling said the company is targeting to achieve a fund size of RM100 million to RM150 million during the initial offer period of 45 days.
As at March 31, 2014, it has a total fund size of RM4.89 billion under management.
On a separate note, commenting on the local interest rate outlook, UOB Asset Management Malaysia head of fixed income Chang Kang Shyang expects Bank Negara to raise the overnight policy rate (OPR) by 25 to 50 basis points in the second half of the year, to address the prolonged negative real interest rate environment.
"Bank Negara has indicated that the current loose monetary policy might be adjusted and it sent a strong signal to the market that the interest rate hike is very near to the corner.
"We think the rate hike will be in July the soonest, but on a gradual basis," Chang said, adding that the bond market will react cautiously in the next few months in view of the expectation of the rate hike.
"Rising interest rate is not good for the bond market, basically you need to adjust your portfolio as you might get hit if the interest rate hike is too fast," he said.