UBS sees EM Asia bonds offering value as global yields stay elevated
Elevated global bond yields are pushing investors to look more selectively across fixed income markets for returns and diversification. UBS says bonds in emerging Asian markets, particularly in technology-related high-yield segments, could benefit from a supportive macroeconomic backdrop and recent outperformance.
Highlights
- UBS is increasing allocation to emerging market Asia credit and fixed income, citing strong macro conditions and high global yields.
- Asian high-yield bonds, particularly in the technology sector, have outperformed in recent months and offer better quality than a decade ago.
- UBS favors gold and broad commodities for diversification, supported by U.S. dollar weakness and rising oil and copper prices.
UBS allocation shift toward Asian credit
As reported by CNBC, UBS is shifting more clearly into emerging market Asia because it sees value in credit and fixed income while global yields remain high. Adrian Zuercher, co-head of global asset allocation and co-head of global investment management APAC at UBS’s chief investment office, says a strong macroeconomic environment is helping emerging market bonds perform well.Zuercher says Asian bonds in the technology sector, especially in high yield, are doing particularly well and have outperformed in the last couple of months. He also says the high-yield segment has much better quality than it did 10 and 15 years ago.
Gold and commodities remain diversification picks
Zuercher says gold remains a very good asset for portfolio diversification, adding that the current backdrop is supportive for trading the metal. He links that view in part to structural weakness in the U.S. dollar.He also says broader commodity exposure looks more interesting for investors seeking diversification, especially as the Middle East situation pushes oil prices higher. Demand tied to the AI boom is also supporting copper and other commodities, and he says a wider commodity allocation can help limit downside risk if oil continues to rise.
In our earlier update on gold prices under a higher-for-longer U.S. rate outlook, we noted that bullion was struggling for direction as markets weighed the risk of further Federal Reserve tightening. We also highlighted how moves in oil and broader commodity prices were feeding inflation concerns and shaping investor demand across precious metals.
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