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22 Apr 2016
Bond flows improving into Asia – SocGen
Research Team at Societe Generale, suggests that the differences in the recent performances in EM LCY (local currency) bond markets are mostly FX-driven, although domestics factors have also been at play in some markets.
Key Quotes
“Bonds that we have highlighted as safe-havens largely underperformed, while those with yields positively correlated with USD-EM rallied. Despite the varying performances, there has been a general improvement in bond flows into Asia – either a reversal of previous outflows or continued/increased inflows.
Asian LCY bonds are likely to benefit from foreign flows as investors search for yield, but this should be premised on investor expectation for Asian FX to at least stay stable. We prefer shorter duration in China amid supply risk, and in Malaysia to guard against risk of a reversal of flows and upon limited supply of bills. In Korea, demand for government bonds is likely to be felt across the curve.”
Key Quotes
“Bonds that we have highlighted as safe-havens largely underperformed, while those with yields positively correlated with USD-EM rallied. Despite the varying performances, there has been a general improvement in bond flows into Asia – either a reversal of previous outflows or continued/increased inflows.
Asian LCY bonds are likely to benefit from foreign flows as investors search for yield, but this should be premised on investor expectation for Asian FX to at least stay stable. We prefer shorter duration in China amid supply risk, and in Malaysia to guard against risk of a reversal of flows and upon limited supply of bills. In Korea, demand for government bonds is likely to be felt across the curve.”