Published March 7, 2009

Asian credit seen to be rewarding

By OH BOON PING

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INVESTMENT grade Asian credit may be the next big thing, as returns on equities continue to slide.

At a finance forum on Thursday, DBS Asset Management chief Deborah Ho said that returns on credit risks are now looking attractive, adding that the 'repair' stage of the market cycle is likely to begin this year.

In such a scenario, credit instruments should outperform equities, as companies carry out their 'balance sheet repairs'.

This comes as credit are typically senior to equities, and these instruments now yield much higher returns. As a result, this gives credit instruments a better risk-adjusted reward this year.

Investments that give such exposure are high-quality Asian credit or bonds exchange traded funds.

In her presentation, Ms Ho also touched on the past financial crises and the recovery rates for each market downturn.

Typically, she says, the recovery takes between one and five years, depending on the severity of the downturn. For the current crisis, the recovery duration is more likely to be at the upper-end of the range.

Also speaking at the forum was Peter Kerger, head of Asia-Pacific for DB Advisors. He felt that the current crisis will bring about a change in the investment landscape, even as investors now have a more realistic expectation of returns.

He believes that balanced investing, global stock-picking, climate change investments and foreign exchange are some of the investment trends that will survive the present turmoil. 'Commodities, metals and energy investments will continue to dominate a lot of space,' he added.

Those likely to disappear include pure emerging market strategies, synthetic collateralised debt obligations and hedge fund replication strategies.