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Stewart Investors manage investment portfolios on behalf of our clients over the long term and have held shares in some companies for over 20 years. They launched their first investment strategy in 1988.

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Asian Quality Bond monthly review and outlook

Asian Quality Bond monthly review and outlook

A monthly review and outlook of the Asian Quality Bond market.

Market review - as at December 2024

In line with market expectations, the Fed cut rates by 25 basis points (bps) in its last meeting of the year. However, policy messaging suggested that the decision was a closer call than expected. With markets already bracing for Trump’s policies in 2025, the US Treasury curve saw the belly to longer end rates sell-off into the end of the year as markets digested the Fed’s message that came with a hawkish tilt. The US Treasury curve steepened over the month, with the 2-year-10-year yield spread reaching a 2024 high of 33bps, before retracing slightly to 32bps. 10-year US benchmark interest rates climbed 40bps over the month to end the year at 4.57% while the 2-year US interest rate increased by 9bps to end at 4.24%.

Asian credit spreads stayed well supported amid low risk sentiment and weaker year end liquidity, Asian investment grade credit spreads narrowed another 3bps to end the year at 103bps, but total returns were impacted by the sell-off in rates. J.P. Morgan Asia Credit Index (JACI) investment grade bonds recorded -0.84% in total returns.

In India, the Adani group continued to refute bribery charges by the US Department of Justice and the SEC, projecting a ‘business as usual’ image. Bloomberg reported that Adani Green was in talks with investors and banks to refinance USD1.1bn worth of loans due in March 2025. Bonds price across the Adani complex gradually stabilised and recovered some ground from its lows. Several pockets of Asian credits did not experience the typical year end lull. Spreads of Korean credits and Korean quasi-sovereign names traded wider by low-teens on South Korea’s political turmoil as the nation’s opposition-controlled parliament nation impeached its president as well as acting president in quick succession, leaving its deputy prime minister and finance minister, Choi Sang-mok, as South Korea’s new interim leader. In Thailand, Thai Oil (TOPTB) was placed on credit watch negative by S&P on delay and cost overruns of its Clean Fuel Project; TOPTB bonds spreads widened by over 30bps. In Japan, Honda and Nissan initiated discussions for a possible merger by 2026 to enhance their competitiveness in the rapidly evolving automotive industry, particularly in the electric vehicle (EV) sector. As the bigger beneficiary of the merger, bonds of Nissan gapped 70-90bps tighter on headlines. 

Asian investment grade sovereign and quasi-sovereign dollar bonds performed broadly in line with the market, with spreads partially counteracting the rise in interest rates.

The primary market was quiet in December in anticipation for a very busy start for 2025, primary markets were expected to be filled with issuers planning to secure funding ahead of market volatility that could come with Trump’s inauguration as president.

Fund positioning

The Fund reduced its overweight in US interest rates while maintaining credit positioning at almost neutral levels versus its benchmark.

Performance review

On a net-of-fees basis (SGD terms), the First Sentier Asian Quality Bond Fund returned -1.34% in December, underperforming its benchmark by -0.34%.

An overall neutral stance in credit spreads vs the benchmark was flat for performance, but outperformance from sector and security selection added to positive returns. Exposure to local currency bonds such as the Australian Commonwealth Government Bonds detracted from returns as Australian rates rose over the month and most currencies weakened against the US dollar.

 

Source : Company data, First Sentier Investors, as of 31 December 2024

 

Important Information

This material is prepared by First Sentier Investors (Singapore) (“FSI”) (Co. Reg No. 196900420D.) whose views and opinions expressed or implied in the material are subject to change without notice. To the extent permitted by law, FSI accepts no liability whatsoever for any loss, whether direct or indirect, arising from any use of or reliance on this material. This material is published for general information and general circulation only and does not have any regard to the specific investment objectives, financial situation and particular needs  of any specific person who may receive this material. Investors may wish to seek advice from a financial adviser  and should read the Prospectus, available from First Sentier Investors (Singapore) or any of our Distributors  before deciding to subscribe for the Fund. In the event that the investor chooses not to seek advice from a  financial adviser, he should consider carefully whether the Fund in question is suitable for him. Past  performance of the Fund or the Manager, and any economic and market trends or forecast, are not indicative of the future or likely performance of the Fund or the Manager. The value of units in the Fund, and any income  accruing to the units from the Fund, may fall as well as rise. Investors should note that their investment is exposed to fluctuations in exchange rates if the base currency of the Fund and/or underlying investment is  different from the currency of your investment. Units are not available to US persons.

Applications for units of the Fund must be made on the application forms accompanying the prospectus. Investments in unit trusts are not obligations of, deposits in, or guaranteed or insured by First Sentier Investors (Singapore), and are subject to risks, including the possible loss of the principal amount invested.

Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. All securities mentioned herein may or may not form part of the holdings of FSI’s portfolios at a certain point in time, and the holdings may change over time.

In the event of discrepancies between the marketing materials and the Prospectus, the Prospectus shall prevail.

In Singapore, this material is issued by First Sentier Investors (Singapore) whose company registration number is 196900420D. This advertisement or material has not been reviewed by the Monetary Authority of Singapore. First Sentier Investors (registration number 53236800B), FSSA Investment Managers (registration number 53314080C), Stewart Investors (registration number 53310114W), RQI Investors (registration number 53472532E) and Igneo Infrastructure Partners (registration number 53447928J) are the business divisions of  First Sentier Investors (Singapore).

First Sentier Investors (Singapore) is part of the investment management business of First Sentier Investors,  which is ultimately owned by Mitsubishi UFJ Financial Group, Inc. (“MUFG”), a global financial group. First  Sentier Investors includes a number of entities in different jurisdictions.

MUFG and its subsidiaries are not responsible for any statement or information contained in this material. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment or entity referred to in  this material or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk, including loss of income and capital invested.