Asian bond investors are no stranger to Australian debt but their appetite is changing in favour of high-yielding corporate bonds, according to Steve Lambert, executive general manager of debt markets at National Australia Bank (NAB) in Sydney.
“We are seeing a shift in relative weightings and what type of credit Asian investors buy,” said Lambert, who believes the market is in risk-on mode. “In the past year, there has been a growing interest in corporate bonds. Investors are looking for yield and they want more balance, more diversification in their portfolios.”
FinanceAsia and NAB recently conducted a survey on Asian institutional investor attitudes towards Australian debt securities, with the results due to be published in the October issue of FinanceAsia magazine. Poll participants offered their views on macroeconomic indicators and provided information on current allocation strategies and future buying interest.
More than three-quarters of respondents who already hold Australian securities said they plan to increase their allocation to corporate bonds in the next 12 months.
Lambert expects the Asian bid to be highest for issuers that have a defined Asia strategy.
“Any company that is taking advantage of the Asian market on its doorstep is likely to appeal,” he said. “This might include companies in the food and agribusiness sectors, or those in base metals, building materials and utilities.”
Investors who are looking for the highest possible yield with limited regard for other factors will earn more if they buy a lower-rated company from a second-tier Asian economy, said Lambert. “But for value and risk, you can’t really go past an Australian corporate bond.
“Listed Australian companies are bound by strict stock exchange rules that require continuous disclosure. Those that issue bonds are household names with strong brands, and they are well covered by both debt and equity analysts.”
Asia’s increasing share of public and private wealth means the pool of capital available to bond issuers is increasing at an unprecedented rate.
The Asian bid is already a critical component of the bookbuilding process for Australian issuers, particularly government entities and financial institutions. NAB reports up to 50% of each deal it arranges for an Australian financial institution is currently placed in Asian hands. The bank expects the same distribution ratios can be achieved for corporate issuers.
“Investors want to take different types of risk and more diversified risk – this is where Australia comes into play,” said Lambert, who notes Australian securities have offered investors a stable proposition and have performed well. “Compared to other developed markets investors can get good yields here, and it’s a triple-A rated credit.”
On the supply side, Lambert is confident Australia’s economy is headed in a positive direction, and this will encourage further issuance from corporate borrowers.
“Australian companies have spent the past few years deleveraging and taking a cautious approach, but now we are seeing growing confidence in the business sector,” he said.
“Company managers are brushing off old projects and recrunching the numbers on potential acquisitions. I see a steady rise in investment activity in the coming months and this will lead to an increase in the demand for funding.”
To make the most of the Asian bid, Lambert said borrowers need to conduct regular roadshows to the region, and not just to the financial centres of Hong Kong and Singapore, but other centres such as Taiwan and Kuala Lumpur.
