Asia Fixed Income Needs a Bigger Map

Kelvin Pang · Morgan Stanley

Asia dollar credit faces a fifth straight year of negative net supply as issuers shift to local currency.

Issuers have increasingly turned to cheaper local currency financing, which is shrinking dollar bond supply. As a result, Asia dollar credit is on track for a fifth straight year of negative net supply. Shrinking supply is a structural feature of the market that supports the case for a broader APAC approach, since dollar credit alone offers a shrinking universe.

“Asia dollar credit is now on track for a fifth straight year of negative net supply.”at 1:06

Kelvin Pang · Morgan Stanley

Asia investment grade credit is the most tightly valued major credit market globally, at 55bp spreads.

Asia investment grade spreads have tightened to 55 basis points. Pang says this makes Asia investment grade the most tightly valued major credit market globally. He cites it as one reason investors have pulled back from Asia credit. The valuation point is presented as a fact about spread levels and implies limited spread cushion, but he does not state a directional call on the asset class.

“That makes Asia investment grade credit the most tightly valued major credit market globally.”at 1:18

Kelvin Pang · Morgan Stanley

A diversified APAC fixed income portfolio could target a 7.5% return with roughly 4% volatility.

Pang says Morgan Stanley's portfolio analysis since 2023 suggests a diversified APAC fixed income portfolio could target a 7.5% return with volatility of roughly 4%, depending on allocation constraints. The claim rests on that modelled analysis of the broader mix of convertible bonds, local currency rates and credit, dollar credit and Japan and Australia exposure. It is a model-based target, not a forecast tied to a date.

“could target a 7.5%”at 3:46

Kelvin Pang · Morgan Stanley

Asia's fundamentals are intact; investors need a broader APAC fixed income map to capture the opportunity.

Asia's fundamentals remain supportive, but the traditional investable universe for Asia has narrowed. Pang argues the problem is investors' narrow view of the region, not Asia itself. Traditional Asia fixed income covers only US dollar credit and local government bonds in emerging Asia. He proposes an APAC fixed income approach that adds convertible bonds, local currency corporate credit, and Japan and Australia. He argues these pieces behave differently and together give a more flexible mix of risks across different economic conditions. He concludes the opportunity has not disappeared and the real question is whether investors are looking at enough of it.

“The opportunity in Asia has not disappeared.”at 4:09

Kelvin Pang · Morgan Stanley

US policy rates above much of Asia since 2023 reversed the environment that long supported Asian bonds.

US policy rates rose above those in much of Asia in early 2023, for the first time since before the global financial crisis. Pang says this turned the environment that had supported Asian bond markets for years upside down. He links the shift to the pressure on the region's bond markets, which helped drive the shrinking dollar supply and the fund outflows he describes.

“U.S. Policy rates rose above those in much of Asia for the first time since before the global financial crisis.”at 0:44

Kelvin Pang · Morgan Stanley

Asia capex is set to rise to $16 trillion by 2030, the strongest industrial cycle since the mid-2000s.

Pang projects Asia Pacific nominal GDP rising from US$41 trillion in 2025 to US$54 trillion by 2031, about one third of global nominal GDP growth over that period. He adds that investment is accelerating, with Asia capital spending rising from about $11 trillion to $16 trillion by 2030. He says this marks the strongest industrial cycle since the mid-2000s. He argues the cycle extends well beyond AI, with energy, defense and broader industrial investment all playing major roles.

“That will mark the strongest industrial cycle since the mid-2000s.”at 2:06

Kelvin Pang · Morgan Stanley

Investors increasingly need to manage currency exposure as the dollar cycle shifts.

Pang says investors increasingly need to manage currency exposure as the dollar cycle shifts. He ties this to the broader APAC approach, where local currency rates bring exposure to currencies and the economic cycle, and currency hedged local bonds can limit foreign exchange risk. The point is brief and asserted rather than backed by numbers, so it carries lower conviction.

“Investors increasingly need to manage currency exposure”at 3:54