Australian institutional bond investors are increasing their global portfolio allocations to the Asia-Pacific region, according to AllianceBernstein.
The global asset manager said institutional investors are looking to act quickly to take advantage of the diversification and relatively high returns offered in the market.
“Direct allocation to Asia-Pacific bond markets by institutional investors has so far lagged retail interest in the region, but our conversations with institutions suggest that’s about to change,” AllianceBernstein director of Asia-Pacific fixed income Hayden Briscoe said.
Mr Briscoe said that institutional investors are becoming more aware of the benefits offered by this sector in the current market.
AllianceBernstein said the Asian government bond markets consist broadly of net creditor nations which generate account surpluses, which means investors can see returns two to five times higher than developed nations.
“Most Asian countries are experiencing higher growth than developed markets, which means higher free cash flow for corporates. Strong economic fundamentals underpin the region’s corporate bond issuers and provide another reason why we believe investors should consider this potential opportunity for a 100 basis-point pick-up,” Mr Briscoe said.
“As more investors become aware of these benefits and start buying Asia-Pacific bonds, that 100 basis-point spread differential will begin to compress, hence the need many institutions see now to become involved in the Asia-Pacific markets in a timely way.”
However, AlianceBernstein has said that while the market provides a strong case for diversification, investors need to be cautious when structuring their portfolio.
Generic allocations to the region can leave investors open to significant risk.
“We recommend that managers be given a broad and flexible approach, allowing rotation across countries, sectors and currencies in the region,” Mr Briscoe said.
