FSA Guide to the Art of Income Investing - HK Version 2016 | Page 7

[Commonwealth Bank of Australia,
Westpac, Australia and New Zealand
Banking Group and National Australia
Bank] as well as UOB, OCBC and
DBS in Singapore. The competitive
challenges are very,
very manageable
because they are
basically developed
markets, with their
market shares well
staked out and
very stable,” says
Ng. “They may
not be growing at
double digits, but
even if they grow at
single digits we see
resilient streams
of earnings over
multiple years and
that presents a
compelling investment case with stable
growth and steady dividend income.”

More attractive in Asia is the
sovereign bond market, with yields
across the region generally remaining
significantly higher than in the
developed world. In Indonesia, for
example, the
yield on 10-year
government
bonds currently
stands at 8 per
cent, while in
Vietnam it is
7 per cent and
in
Pakistan
it is 9%. This
compares with
1.4% per cent in
the UK and 1.7%
per cent in the
US.

‘MORE ATTRACTIVE
IN ASIA IS THE
SOVEREIGN BOND
MARKET, WITH YIELDS
ACROSS THE REGION
GENERALLY REMAINING
SIGNIFICANTLY HIGHER
THAN IN THE DEVELOPED
WORLD.’

Ng notes that Hong Kong offers
a group of stocks with similar
characteristics to those in Singapore,
but points out that the fact that many
operate in mainland China, which
despite slowing is still in growth mode,
means they pay little in the way of
dividends “because the earnings are
recycled into expansion”.

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For Columbia
Threadneedle’s Clifford Lau, head of
the business’s Asia fixed income team
and manager of the Threadneedle
Flexible Asia Bond Fund, this is where
the real opportunity lies.
“Last year my preference would
have been more on corporate names,
but as things have changed and
evolved that’s not the case,” he says.
“In sovereign funds, Indonesia has
started to look interesting in terms
of spread valuations, but an even
more exciting market to track is the

18%
Global
High Yield Corporate vs FI Sovereigns

3 Year %
12%

6%

0%
28/2/13

31/10/13

30/6/14

28/2/15

31/10/15

-6%

Index : Barclays Global High Yield Corporate TR in US
Index : HFRX Fixed Income Sovereign TR in US

frontier emerging Asian sovereigns,
say Sri Lanka, Mongolia, Pakistan or
Vietnam. It will be a challenging year
for them, but the negatives are priced
in already. With sovereigns, we see
growing opportunities.”
The pay-off, of course, is that such
securities come with a much higher
risk profile than Western treasuries
or investment-grade issuances.
Knowledgeable, active managers
should be able to guide investors
through these risks, allowing them to
reliably capture income further from
the mainstream. FSA

Fund Selector Asia Guide to the Art of Income Investing March 2016

7