Last year was one that many investors in Asian bonds might like to forget. The Bloomberg JPMorgan Asia Dollar Index was 4% weaker, the benchmark J.P. Morgan Asia Credit Index (JACI) was down 0.77% overall, and the noninvestment grade portion of that index posted a return of -3.20%. In our view, asset returns may see some recovery in 2019, but given the divergence in some country-level dynamics, we are taking a more cautious approach in our overall Asia portfolio positioning.
In our latest Cyclical Outlook, “Synching Lower,” we described our expectations for a synchronized global slowdown over the coming year, and Asia will not be immune. This year is likely to see further rebalancing in Asian economies to address this slowdown as well as the geopolitical risks that have developed over the past 12 months. We believe that China will continue to experience headwinds to growth, but as investors, we see opportunities, with valuations for certain issuers starting to look attractive. We aim to maintain flexibility to increase exposure in the event of further mispricing or dislocation. In India, short-dated financial bonds and higher-quality quasi- sovereign issuers should remain resilient.
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