In comparison to Europe and the US, pressure on prices is much weaker in Asia. Many Asian countries have already paused or slowed the pace of rate hike. In April, South Korea's inflation rose 3.7% year on year, the lowest rate in 14 months. Markets believe the country's current rate hike cycle has ended, with the possibility of rate cut in the second half. Hence, we are constructive on South Korean banks because of the sector's favourable profit outlook. The industry's regulatory framework is robust, and the financial system is sound and stable. Fitch Ratings expected South Korean banks have room to reprice loans upwards, benefiting the sector's development. In addition, ample domestic liquidity helps support margins and profitability, lowering the cost of funds and subsequently, enhancing risk management in face of economic headwinds. These attributes underpin the resilience of the country's banking sector. South Korea's investment-grade banks are trading at attractive valuations and are rated A or AA. The appealing risk-reward ratio is the reason why the teams see allure in the sector.
Indonesia annual consumer prices rose 4.33% in April, extending its downward momentum, and alleviating the country's need for further rate increase. Some investment-grade sovereign and quasi-sovereign credit spreads rangebound within tight levels. Peaking interest rates benefit oil and commodities segments. From a technical and fund flows perspective, the overall outlook remains steadily optimistic. Of late, a state-owned Indonesia geothermal power company issued new green bonds and priced at tight, underscoring strong investors demand towards energy assets, particularly renewable energy. This lent support to the local bond market.
Chinese investment-grade bonds outlook buoyant
Logistics, food delivery and technology, media and telecommunications (TMT) are sectors preferred by our teams. Economic rebound buoys retail sales recovery. Official data showed logistics and food delivery-related sectors stayed above the 50-level in April, suggesting activities are still in expansion mode. These bonds, which are rated BBB, have wide credit spreads and offer juicy yields. As for the TMT industry, we favour the industry for its robust fundamentals. There are also signs that the authorities are reversing their stringent regulatory stance towards the tech industry, paving way for a brighter corporate prospect. Recently, a Chinese internet giant announced the restructuring plan of splitting its company into six business groups that could independently seek individual listings. Our investment teams perceive the move as a sign of relaxation towards refinancing activities from the authorities, which is constructive for future growth.
When global economic growth tapers off, Asia is still marching on steadily. Nevertheless, Asian investment-grade bonds are vastly diversified across countries and sectors and investors should conduct thorough analyses to capitalise opportunities in a fast-evolving market. If investing across a diverse portfolio is what you have in mind, consider investing with a team of professionals who are experienced in managing the assets in a timely manner.