In three months marred by volatility, bond markets in Asia stood out for their relative calm. Local investors are to thank.
While the Shanghai Composite Index surged 16 percent only to plunge double that, Asia’s riskiest notes rose 0.8 percent. As Greece teetered toward default and an index of European government bonds slumped 2.2 percent, Asian corporate dollar bonds lost 0.5 percent.
Such resilience is due in part to home bias. The share of dollar debt from Asia able to be purchased by U.S. investors dropped to 22 percent this year from 47 percent in 2010 because not as many notes have Securities and Exchange Commission registration or 144a rights, which are requirements for North American participation. As a result, almost 75 percent of all dollar notes sold over the past 12 months have been bought by investors in the region, Bloomberg data show.
“The fact more investors closer to home have put their money in Asian bonds means there’s less panic,” said Neel Gopalakrishnan, an emerging markets fixed income analyst at Credit Suisse Group AG’s private banking and wealth management unit. “There are fewer U.S. investors involved, who tend to be sell first, ask questions later when negative news breaks.”
Bonds in Asia have resisted even the recent turbulence in Chinese stocks. Equities in Shanghai are mostly traded by local individuals who don’t have access to international debt markets, said Ben Sy, the Hong Kong-based head of fixed income, currencies and commodities for Asia at JPMorgan Chase & Co.’s private banking unit.
When Shanghai shares dropped 8.5 percent Monday, their biggest one-day plunge since February 2007, China Petrochemical Corp.’s $2.5 billion of 2020 securities — the most liquid of all offshore corporate notes from China — barely flinched, rising 0.04 cents to 98.082 cents on the dollar, the highest in more than two weeks.
Agile Property Holdings Ltd.’s shares have tumbled 31 percent over the past three months. Its $500 million of 8.375 percent 2019 debentures have returned 3.8 percent since April 30, prices compiled by Bloomberg show. That strength is also partly due to millionaires in the region, who bought 44 percent of the debt.
“I believe one of the reasons the Chinese corporate market has remained so resilient in the face of the stock market volatility is the robust and sticky private banking bid,” said Todd Schubert, the head of fixed-income research at Bank of Singapore, Oversea Chinese Banking Corp.’s private banking unit.
According to a June 17 Cap Gemini SA and Royal Bank of Canada report, the rich got richer faster in the Asia-Pacific region last year than any place in the world. People with at least $1 million in investable assets grew their wealth by 11 percent to $15.8 trillion, surpassing North America’s 9 percent and Europe’s 4.6 percent.
The region’s bonds have also proven immune to turbulence in Europe caused by Greece. And because Asia is a net importer of oil, the drop in commodity prices is a boon.
Crude has fallen 20 percent since April 30 and shares of China National Offshore Oil Corp. have decreased 27 percent. The state-owned company’s bonds due 2019, its most liquid, have lost only 2.8 percent.
“Asia is a safe haven of sorts,” Sy said. Investors “have to invest somewhere, there’s still a lot of liquidity around the world.”
Another magnet is Asia’s relative strong economic growth. Although expansion in China was the weakest last year in more than two decades, 7.4 percent’s not bad compared with Russia at 0.6 percent, Brazil at 0.2 percent and the 2.4 percent the U.S. turned in.
“Most Asian economies are fundamentally strong with relatively stable currencies,” said Brigitte Posch, the London-based head of emerging-market corporate debt at Babson Capital Management LLC, which managed $219 billion as of June 30. “Asian bonds have also historically enjoyed strong local support with private banks — local investors — having been large sponsors of bond issues.”