REGIONAL BOND
SECTOR ANALYSIS
Three-year sector performance
Hong Kong dollar, RMB and US dollar fixed
interest funds delivered better returns than
those from the Asia-Pacific and Europe
segments (in US dollar terms over the threeyear period). Asian hard currency-focused
funds also performed well and ranked
amongst the sectors’ top performers. As the
US Fed normalised its monetary policy stance,
a stronger US dollar ended up being a drag
on performance for funds focused on locallydenominated Asian and European bonds.
MARKET REVIEW
Source: FE Analytics (31 Mar ’13 to 31 Mar ’16)
Three-year annualised return/volatility
European bonds began well in 2013 and
stayed strong until performance began to
fall around mid-2014, caused largely by a
weakening euro in response to the ECB’s
expanding its quantitative easing asset
purchase program. RMB bonds delivered
steady returns in 2013, but subsequently
China experienced its first domestic bond
default in 2014, which triggered off global
concerns. These concerns intensified as
China’s growth weakened and the PBoC’s
devaluation of the RMB in August 2015
further dragged down performance. As
the US dollar strengthened against most
currencies, helped by the US Fed tapering
its QE measures and hiking its rates in
December of 2015, it did weaken the
performance of bonds denominated in
local currencies.
MARKET OUTLOOK
While EU, US and Asia investment grade
bond spreads have widened, the spreads
of the EU bonds has been more moderate.
Despite the easing measures by the ECB
being supportive, much of this may have
already been priced in. The outlook for
RMB and Asian bonds in general should be
more positive as there is likely to be less
issuance in 2016. Overall, the divergence
in policies by the major central banks will
continue to be a source of volatility across
the bond market.
Provided by FE Advisory Asia as of 31 May ’16
Source: FE Analytics (31 Mar ’13 to 31 Mar ’16)
48
Fund Selector Asia Fund Insights Directory 2016
For professional investors only
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