Timeline: How Covid-19 is impacting Asian credit markets
Our Asian Fixed Income team highlight key market events and portfolio positioning throughout the crisis - and share their outlook for markets ahead.
In the next 4 to 6 weeks we are not in a position to predict at what stage the spread of Covid-19 will be, but we do see cause for more stability in financial markets. There will be more bad news to come, especially via economic data, yet we must look through this and look for opportunities. China is a dominant part of Asian Financial Markets and the policy measures put in place are showing early signs of impact and may give us insight as to the next direction for credit spreads. Our fundamental approach to credit research is our strength over the long term. In times like this, valuations are distorted due to market disruption and for the near term may be less of a driver. Focusing on fundamental research to find the most resilient companies to invest in over the longer term, is the most prudent approach at this time. It is imperative to be cautious as we analyse the opportunities and any decision to add risk to the portfolios will be taken carefully. However, we would like to leave investors with three positive potential outcomes as we navigate these extraordinary markets.
- Returns for the year could be higher than initially anticipated at the start of the year, and more in line with last years Fixed Income returns, as yields in the portfolios increase. That said, at this juncture Fixed Income returns are severely challenged given the moves noted above.
- Macro outlook could turn positive over the medium term as Central Banks and Governments commit to do anything it takes to keep their economies afloat. China in particular has been proactive yet cautious to date, and has room for further economic aid given their fiscal position and that their Central Bank rates are not at zero.
- Banks are significantly better capitalized and in better position than in 2008 to support the broader economy. That is not to say they won’t feel stress, however with capital buffers as they are, they have better flexibility to maneuver through this difficult period.
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