Global investors have become more interested in bonds from the Asia-Pacific region, as a source of diversification and asset quality, according to Beatriz Ranea, fixed income manager at MAPFRE AM.
She told FT Adviser that, considering investment policy constraints for the mutual and pension funds managed by MAPFRE AM, Asia-Pacific fixed income was "a source of diversification in our portfolios".
There are some strong pockets of corporate bond opportunities, she said, such as Japanese megabanks, and companies in Australia and New Zealand.
But she said the managers implemented their view on the region through investments in the banking sector as a way to gain exposure to the local economy and local companies.
Regarding Japan, Ranea said: "We view domestic growth rates and cost push inflation as the main drivers for the BoJ to potentially give up ultra loose monetary policies that have been in place for decades.
"The challenge for 2024 will be to reach a target inflation of 2 per cent, currently at higher levels, and protecting the Yen from further depreciation.
"This could be tough, considering decreasing real incomes are hitting consumption as of today, according to the latest data. In this context, so far, Japanese Megabanks performed well and could continue to do so as their metrics remain solid."
This is because capital levels are reasonable, liquidity is comfortable, asset quality has not deteriorated and, therefore, the managers view their conservative underwriting policies as appropriate in a potential uncertain environment, given these banks also have international exposure.
There has been some "softening" however in Australia, Ranea said.
She explained: "Some signs of softening growth rates lately reinforce our view that the RBA could remain in 'wait and see' mode for some time after several increases of their target interest rates in the last 14 months.
"On the other hand, the housing market is now experiencing a hike after the dip seen in 2022. Low unemployment rates, new immigration, and shortage of properties seem to be behind this movement."
According to MAPFRE, this is supportive for Australian banks’ very sound asset quality.
Ranea added: "We also note that the regulatory requirements by the local authority are, in some aspects, even stricter than global Basel requirements.
"We view the Australian banking system as resilient in a context of potential global uncertainty."
