There are still opportunities for returns in the current economic environment, according to the French asset manager's head of investments in Singapore.

Head of Investments at Amundi Singapore, Joevin Teo, gives his views on the risks and opportunities in Asian fixed income, in a discussion ahead of the Fixed Income Leaders Summit Asia 2021.

Joevin Teo, how do you see the changing geopolitical landscape impacting the markets for the rest of the year?

First, investors should be vigilant as the continued spread of the delta variant worldwide could lead to potential deceleration in economic growth, although further lockdowns are unlikely given how governments have witnessed the devastating effects on various economies.

Also, there is likely to be some form of policy divergence between central banks. China appears to be moving towards an accommodative bias given its growth momentum. This stands in contrast to the U.S., which is seeing higher inflation coupled with a jobs recovery.

What should investors look out for?

We believe investors should not be too pessimistic and should be vigilant. In the near term, investors should be more prudent and look for hedging opportunities in case of an unexpected economic slowdown. We maintain a bias towards companies which will benefit from reopening and those with resilient, non-disrupted business models and strong balance sheets.

In fixed income we continue to be cautious in extending duration and see opportunities in credit spreads. While corporate earnings continue to be stable, valuations are starting to be stretched; investors have to be even more selective.

What are your views on China assets, given the state’s increased activities to regulate across various sectors?

There have indeed been recent regulatory moves in various sectors in China. Markets are likely to watch out for further developments. At the same time China's push for self-sufficiency and overall market strength and dynamics should continue to provide further opportunities for investors.

Over the longer term, Chinese assets will benefit from stable economic growth, its reorientation towards domestic consumption and from government policy support.

How do you see economic recovery unfolding across Asia and what are the opportunities available? 

While there has been a resurgence of Covid cases and further restrictions across EM Asia, the overall impact is unlikely to derail economic growth to the same degree as 2020. The vaccine rollout in Asia continues to be uneven but the general trend is encouraging. Governments in Asia know how to temper the spillover of the pandemic's effects on economic growth; the likelihood of further complete and absolute shutdowns is likely to be lower. 

We continue to be positive on overall Asian fixed income, in both the hard currency and in local currency. EM Hard Currency Asian credits continue to trade at a yield premium versus comparable EM, US and Euro credits, offering investors attractive value opportunities by taking lower duration risk for higher yields. Within the Asian local currency space, Asian Local currency bonds are likely to continue trading well. China is likely to benefit from index inclusion, while other higher-yielding government bond markets should benefit from improving external balances and supportive growth-inflation dynamics.

Is there still room for sustainability on the agenda?

Over time, investors are likely to place an increased emphasis on incorporating ESG into their investment decisions. The level of sophistication is likely to increase, as investors look beyond exclusionary criteria and towards companies which show real progress towards ESG. Investors are also likely to adopt a more active approach to engage companies on their ESG frameworks.

  • finews.asia is an official media partner of the Fixed Income Leaders Summit Asia, held on 29–30 September 2021, SGT. Register now to join Joevin Teo’s session: «All- Star Panel: Risks and Opportunities in Asian Fixed Income - How can you navigate the current environment to overcome the low interest rates, mitigate risks and find opportunities to get the returns you need?» 

 

Joevin Teo has experience in global and Asian fixed income markets across rates, credit, FX and liquidity products. He has managed fixed income portfolios for both private and public institutions. He was previously Head of Asian Fixed Income at Amundi Singapore, and before that was with HSBC Global Asset Management in Hong Kong where he was a portfolio manager with the Asian Fixed Income team. He was previously a senior dealer with the Bank of Tokyo Mitsubishi in Hong Kong and a portfolio manager with the Reserve Management Department at the Monetary Authority of Singapore.