Low-interest environment driving investors to seek higher yields

Low-interest environment driving investors to seek higher yields
By Thomas Cho | Posted: 10 December 2012 1959 hrs
 
SINGAPORE: The low-interest environment is driving investors to seek higher returns as global economic conditions improve.

Flushed with liquidity from major central banks' monetary easing, most analysts agreed that there is little upside left on safe assets like sovereign government debts.

Instead, analysts are seeing more investors investing in high yield bonds often classified as distressed that offer returns of over 6 percent per annum.

With the US Presidential election and China's leadership change out of the way, Asian investors are working up an appetite for riskier assets.

But this time, they are putting their money in fixed income products instead of Asian equities, which offer far better returns than bonds.

Thailand and Philippines stock indices have showed a over 30 percent return so far this year, while, bigger market like Hong Kong's Hang Seng Index gained some over 20 percent.

Schroder Investment Management's head of Asian Fixed Income, Rajeev De Mello, said: "Interest rates are going to remain close to zero. So for a lot of investors who need returns, they don't have too much choice -- it is either they buy bonds or buy equities.

"But for many types of investors, equities may be just too riskier and they may need a more predictable revenue stream."

In recent months, Asia has seen a growing number of corporate debt issues, which are oversubscribed.

Some investors are even drawn to beaten-down corporate bonds.

CreditSights' senior credit analyst, Sandra Chow, said: "In the past couple of weeks, we've seen a big shift into the high yield sector. A lot of bonds which was previously traded at double-digit yield are now coming to single-digit or even lower yields."

The credit quality of corporate bonds may not be improving, but analysts said bond funds face growing pressure from clients to deliver better-than-market returns of 9 to 10 percent.

Apart from market liquidity, French bank, Credit Agricole says wealthy individuals in Asia are also on the lookout for steady returns for their growing wealth.

Based on an estimated rate of growth 8 percent a year, China alone is expected to generate some US$560 billion of net new wealth every year.

- CNA/lp

- wong chee tat :)