Asia’s high-yield bond market is experiencing a resurgence after facing challenges in China’s property sector. Investors are now seeing healthy returns and higher yields, with the KraneShares Asia Pacific High Income Bond ETF (Ticker: KHYB) emerging as the highest-yielding US-listed ETF in Bloomberg’s high-yield category, boasting a 12-month trailing yield of 14.95% (SEC 30-Day Yield: 7.50%).
Wai Hoong Leong, portfolio manager of KHYB at Nikko Asset Management, attributes the recent outperformance of the strategy to the credit cycle recovery in Asia, particularly in countries like Indonesia and India. The fundamentals for Asian credit remain strong, with low default rates outside of China, making Asia ex-China an attractive investment opportunity.
Compared to US and European high-yield corporates, Asia’s corporate high-yield market offers higher spreads, making it more appealing for investors seeking opportunities for credit selection. The technicals in the Asia high-yield market are also favorable, with subdued new supply and robust demand from regional institutional investors contributing to the market’s strength.
India’s bond market is viewed positively, with the renewable energy sector standing out as particularly attractive due to structural demand growth and government support. Corporate fundamentals in India remain healthy, with minimal defaults expected this year.
While there are risks to monitor, such as the US interest rate cycle and challenges in the Chinese real estate market, KHYB is positioned well with a low duration to mitigate potential risks. The fund’s performance has been strong, outperforming most US and global fixed income benchmarks.
Overall, the outlook for Asia’s high-yield bond market remains positive, with opportunities for investors to capitalize on the region’s strong fundamentals and attractive spreads. By staying informed and monitoring market developments, investors can make informed decisions to maximize returns in this dynamic market.