In a visit to New York, Anthony Michael, head of fixed income, Asia Pacific, for Aberdeen Asset Management Asia Ltd. sat down with Advanced Trading to talk Fixed Income, how Asia is handling the rough markets and what the crystal ball says.
How is Fixed Income doing in Asia?
Anthony Michael:It's a rough ride right now. Since July and August when Greece started to fall apart and the equity sell off and blowing out of over September ... so Asia is feeling the whole breeze, absolutely.
People think Asian markets work okay when risk and volatility come in, sort of like subdue levels. To some levels, elements of the market are like that still. The bond markets can do okay with the local currency terms but if you're an offshore investor you're getting the currency impact. It's the currency that really hits you over the last couple of months.
How is the US dollar doing in Asia?
Michael:There's a rally in the US dollars so people are flocking to the dollar.
Europe has really taken off attention for the congressional near shut down, the super committee and no so super, it's all been about Europe. And that's fair because what's happening in Europe is potentially to the global economy than what might straggle along next year.
Has Fixed Income been a safe haven due to volatility?
Michael:Year to date, the markets are still up. It's not like equities, which have fallen 15 to 20 percent in some markets. It depends on what part of the Fixed Income space you're in. The currency rates have hurt people in the last couple of months. If you live in Asia and you invest in your own bond markets you get returns of 3 to 4, and 5 to 8 percent. But if you're offshore, the currency volatilities kicks in. It hasn't been so fabulous.
Has the recent market volatility had a big impact on bond market or just equities?
Michael:When you think about Asian fixed income, for us this is 10 different markets so the way the Singaporean bond market reacts to volatility is very different from other places like Malaysia and the Philippines. Or India for that matter. India is running on their own dynamics thanks to very high inflation, very high food and energy costs.
These brief periods of market volatility, you are going to see sell offs in these markets. For us, there are times of opportunity. For people looking to get into Asia for the first time when you go through periods of volatility when the equity markets sell off, when the spread blow out wide and the currencies are cheaper -- that's the time you want to go in.
Because you know the structural story in Asia is still in place. Now is the time to execute those diversification strategies.
What does your crystal ball say?
Michael:For the next six months, we think there is going to be a lot of uncertainty about Europe, no matter what they do or say this week and whether this is a Bandaid or not, there is going to be months of uncertainty in the market. So, Asian currencies will still struggle against the US dollar for the next six months but structurally we still like Asian currencies against the Euro and the dollar for the next 12 to 18 months.
We think that when the volatility recedes that a basket of Asian currencies will perform pretty well against the US dollar over the next 12 to 18 months.