KUALA LUMPUR (July 12): Investors owning Asian credits may enjoy a higher income return when relatively attractive entry points arise in a rising interest rate environment, said Manulife Investment Management.

Its fixed income chief investment officer for Asia (ex-Japan), Murray Collis, said higher Asian corporate bond yields are providing investors with relatively attractive entry points for incoming investing and dollar-cost averaging.

In a virtual media briefing on Tuesday (July 12), Collis also said that some Asian countries may offer pockets of opportunities for fixed income investors, especially after US Treasury yields retraced to higher levels from pandemic lows.

"We expect to see a greater diversity in the pace and magnitude of monetary policy tightening across the region, and when compared to the US Fed (Federal Reserve) and other developed-market central banks, generally a less hawkish central bank stance should support selective Asian credit markets.

"We expect idiosyncratic risks to a certain degree remains in Asian credit markets for the second half of 2022. However investors are more compensated with Asia credits offering relatively attractive valuations post US Treasury yield movements year-to-date," he added.

For example, he said Asian investment grade corporate issuers are offering yields of around 5.5% on average while Asian high yield corporate issuers are offering yields of around 12% on average, after the corrections among global credits spurred by rising macro headwinds and weak sentiment globally.

"We believe Asia's credit fundamentals remain largely intact and supported by a strengthened local and international investor base," he added.

Meanwhile, Collis noted the rising trend of regional issuance of environmental, social, and governance (ESG) themed bonds with the green finance revolution taking place in Asia.

Two out of every five US dollar Asian credit new issues are ESG bonds in 2022, compared with one out of five bond issuances in 2021, despite the volatile market environment, he said.

"We saw a dramatic increase in the amount of issuance [of ESG-related bonds] in the percentage of the market over the last two years from a relatively low base," said Collis.

He said some regional governments have also fast-tracking plans to issue their first green bonds as numerous countries have made ambitious "net zero" pledges over the past year.

"One example is Indian renewable energy credits, of which the country seeks to improve energy self-sufficiency and meet its net zero emissions goal by 2070," he said.