Calibrating Your Portfolio with Asia Fixed Income

Asia fixed income offers exciting total return potential and risk-mitigating diversification.

In a low-yield environment—with the prospect of rate increases looming—many fixed income investors turn to U.S. high yield and broad emerging markets for yield enhancement and diversification. However, this may not be the best approach.

The typical emerging-market high-yield index is backward-looking and is weighted significantly more toward Latin America compared to Asia. History has shown that in credit and high yield markets, Asia has almost always given investors higher returns than the U.S. and Latin America, with lower volatility.

Asia Offers Historically Higher Yields with Less Risk

  • 3Y
  • 5Y
  • 10Y
  • Since Inception
3 year annualized returns chart
5 year annualized returns chart
10 year annualized returns chart
Since inception annualized returns chart

Past performance is no guarantee of future results. Indexes are unmanaged and it is not possible to invest in them directly. Data through December 31, 2017. Since Inception data from December 31, 1998 except for LATAM HY, which is from December 31, 2001 Sources: Bloomberg, Merrill Lynch, Pierce, Fenner & Smith Incorporated (“BofAML”), used with permission. **See below for full disclaimer.

Protection from Rising Interest Rates

Asia fixed income in general—and Asia high yield in particular—historically have had a relatively low beta to U.S. interest rates, making them a natural complement to U.S. Bonds. For example, between 1999 and 2017, the beta of Asia high-yield indices (USD denominated) to U.S. Treasuries was about four times lower than that of global bond indices and more than three times lower than that of U.S. bond indices.

Asia High Yield has Low Beta to US Treasuries
Asia vs US Yield Beta

Chart shows beta of each asset class to the BAML U.S. Treasury current 5-Year Index, based on monthly returns. Data for the December 31, 1998 – December 31, 2017 time period. Local Currency Asia Bond, beta since inception 2001. Source: Bloomberg.

A Strategic Allocation to Asia Fixed Income

Institutions are placing Asia closer to the center of their investment plans and priorities, according to a research report produced by Matthews Asia and Institutional Investor magazine. In today’s environment, Asia fixed income is worth consideration for those seeking total return potential and diversification. A dedicated allocation to Asia provides greater exposure to Asia’s unique combination of exceptionally bright growth prospects and strong companies.

Investment Team Spotlight

Our fixed income portfolio managers offer deep experience in Asia and are committed to helping you understand and capitalize on its long-term growth potential.

Teresa Kong, Portfolio Manager
"In the last 20 years, Asia has produced a favorable fixed income investment climate and we expect this to continue into the future." Teresa Kong, CFA, Portfolio Manager
Satya Patel, Portfolio Manager
"As specialists in Asian credit markets, we understand what opportunities and pitfalls to look for." Satya Patel, Portfolio Manager

Disclosure and Notes

* BofAML permits use of the BofAML indices and related data on an "as is" basis, makes no warranties regarding same, does not guarantee the suitability, quality, accuracy, timeliness, and/or completeness of the bofaml indices or any data included in, related to, or derived therefrom, assumes no liability in connection with the use of the foregoing, and does not sponsor, endorse, or recommend Matthews Asia, or any of its products or services.

From December 31, 1998 to December 31, 2017, beta of the JP Morgan Asia Credit Index (high yield portion) to the BofAML U.S. Treasury Current 5 Year Index measured 0.20, compared with Barclays Global Aggregate (beta of 0.81) and the Barclays U.S. Aggregate (beta of 0.69).


The views and information discussed in this report are as of the date of publication, are subject to change and may not reflect current views. The views expressed represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. Investment involves risk. Past performance is no guarantee of future results. Investing in international and emerging markets may involve additional risks, such as s ocial and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. The information contained herein has been derived from several sources believed to be r eliable and accurate at the time of compilation, but no representation or warranty (express or implied) is made as to the accuracy or completeness of any of this information. Matthews Asia and its affiliates do not accept any liability for losses either direct or consequential caused by the use of this information. This report is for informational purposes and is not a solicitation, offer or recommendation of any security, investment management service or advisory service.