Asia is projected to become the oldest region in the world – by the 2030s, it will be home to around 60% of the world’s elderly. Jamie Grant, Head of Emerging Markets Debt and Asian Fixed Income at CFSGAM, explains why these demographic shifts are expected to have a significant impact on demand for Asia’s fixed income markets over the next decade.

Pension systems must evolve quickly

Many of Asia’s existing retirement systems appear ill-prepared for rapid population ageing. It’s worth remembering that comparable demographic changes evolved over a century in Europe and North America, but are occurring within a single generation in Asia.

In fact, the Asian Development Bank has suggested that by 2030, 500 million savers in Asia will begin a pension plan for the first time. This rapid development of pension systems across the region is expected to significantly increase demand for various investment types in Asia, including fixed income.

Compared to OECD averages, the percentage of Asian people that contribute to pensions is currently low. Hong Kong and Singapore’s pension systems are the most developed in Asia, but other major economies in the region are coming off a lower base in terms of pension system development. We anticipate the pace of growth and development will be greater for these economies, potentially presenting interesting opportunities for investors.

Asia is becoming wealthier as well as older. Along with solid economic growth rates, GDP per capita is projected to rise significantly in Asia. This is supporting growth in the middle class across the region, which is significant in terms of population. Over the long term, this is expected to support demand for Asian fixed income, as well as other investment types.

Projected GDP (US$) per capita

Source: PWC, CFSGAM, 2017

The appeal of Asian credit

Pension growth appears likely to underpin support for Asian investment grade corporate bonds in the coming years. When we meet investors yet to allocate to Asian credit, we often suggest they should consider it as a core holding within a diversified investment portfolio going forward. The market is maturing and has historically produced risk adjusted returns that compare favourably to other asset classes.

Managing portfolios since 1999, our Emerging Markets Debt and Asia Fixed Income team is one of the longest established in its asset class. While emerging markets can be more volatile and illiquid than their developed counterparts, our active investment approach and focus on liquidity aims to preserve capital. For over 10 years, ESG considerations have been integrated into our credit research process, helping us to identify and manage risks in Asian fixed income portfolios.

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