- From our vantage point, there is attractive relative value embedded in particular situations that are not well understood by the market nor widely acknowledged. For example, Prosus (PRX.NA), Tencent’s 24% shareholder with a <1% LTV, trades >100bps wider than Tencent.
Australian Banks: Offering solid fundamentals with a yield premium over U.S. peers.
- We have a preference for the “Big 4” (i.e. ANZ Bank, Commonwealth Bank of Australia, National Australia Bank, and Westpac) and Macquarie Bank for their relatively clean balance sheets, solid fundamentals, and robust risk models.
- Tier 2 capital of these banks feature investor-friendly structures and low extension risk, presenting attractive deployment opportunities as more supply is expected this year and next.
- The Australian Banks are now included in APAC credit indices, providing strong technical support for the sector in 2025.
Japanese Financials: The fourth largest economy globally and second largest savings market in terms of life and annuity products.
- We currently favor Total Loss-Absorbing Capacity (“TLAC”) capital issued by the largest Japanese life insurers for its attractive risk premium ─ more than 50bps over senior bonds of a similar rating and duration.
- We also prefer senior bonds issued by the country’s largest diversified financial services groups, which trade the widest among APAC peers of comparable credit profiles.
- Like Australian banks, this sector is expected to benefit from strong technical support and onshore demand.
Quasi-Sovereign Bonds: Strong relative value, with an additional 75-100bps spread
- We are focused on national leaders in sectors such as oil and gas, utilities, and mining, which are majority owned by national governments. Their credit ratings are typically on par with the corresponding sovereign ratings, providing downside protection.
- We particularly like the attractive yield provided by the long end of the curve.
Avoiding Pitfalls: A Targeted Approach to Risk
While APAC IG offers significant opportunity, it is crucial to be selective. Strategies should focus on minimizing exposure to fallen angels and ensuring a diversified approach to avoid concentrated risks in any single economy or sector. Unlike the one-size-fits-all approach often applied to Western markets, successful investing in APAC requires a tailored strategy that accounts for each country’s unique macro, political, and fiscal landscape.
Investors seeking yield, diversification, and stability should not overlook APAC IG credit. With strong fundamentals, a track record of resilience, and an evolving market structure that is attracting global institutional capital, APAC IG offers an attractive proposition in today’s uncertain investment environment. The key to success lies in an active, nuanced approach—one that recognizes the region’s diversity and embraces the opportunities it presents. Simply put, there is no “One Asia,” and investment strategies that acknowledge this complexity will be best positioned to generate real alpha.
