YOUR GOALS,OUR COMMITMENT.

On the ground in Asia
Monthly Insights: Asian Fixed Income (March 2024)
Positive outlook for Asian local government bonds; fundamentals continue to support
Asian credit

By the Asian Fixed Income Team
16 April 2024

Summary— US Treasuries (USTs) rallied at the start of the month, with the surge
primarily driven by major central banks’ statements. The rally was reversed
following the release of steady US inflation data, which raised concerns
about a potential upward adjustment to the dot plot. Eventually, Federal
Reserve (Fed) officials signalled in their latest projections that they still see
three rate cuts in 2024. At the end of March, the benchmark 2- and 10-year
UST yields settled at 4.62% and 4.20%, respectively, 0.1 basis points (bps)higher and 5.0 bps lower compared to the end of February.
— We maintain a positive outlook for Asian local government bonds,
particularly those from India, Indonesia and the Philippines. In our view, thedisinflation trends in these countries should provide their central banks withthe flexibility to shift towards rate cuts later in the year. We expect thisbackdrop of a slow but steady easing of monetary policy, coupled withreasonable growth, to be positive for the bonds of these countries.
— Asian credits registered total returns of +1.06% in March as credit spreads
tightened 9 bps. Asian investment-grade (IG) credit slightly
underperformed its Asian high-yield (HY) counterpart, rising 0.94% as
spreads narrowed 4.6 bps. Meanwhile, Asian HY credit gained 1.81% as
spreads tightened 55 bps.
— From a technical perspective, we expect Asia credit to remain wellsupported due to subdued net new supply as issuers continue to accesscheaper onshore funding. Although fund flows into emerging market hardcurrency funds have remained weak, demand remains robust from regional
institutional investors looking to lock in attractive yields. The realisation ofcertain negative risk factors may exert some widening pressure Asia credit
spreads, particularly in the IG segment.

FOR SOPHISTICATED INVESTORS ONLYON THE GROUND IN ASIA MONTHLY INSIGHTS: ASIAN FIXED INCOME (MARCH 2024)

Asian rates and FXMarket review
The Fed holds to forecast of three rates cuts in 2024
USTs rallied at the start of the month, with the surge primarily driven by major central banks’ statements. Despite
their cautious approach to accommodative measures, the central banks confirmed that easing would be
implemented this year. The US jobs report led to a further drop in yields. Although US labour data mostly exceeded
expectations, investors interpreted softer wage growth and a higher unemployment rate as signs of a potential
softening in the jobs market.
The rally by USTs the start of March completely reversed course following the release of steady US inflation data,
which raised concerns about a potential upward revision to the dot plot at the Federal Open Market Committee
meeting. UST yields pulled back slightly after the Fed maintained its relatively dovish stance. Despite improvements
to their growth and inflation projections, the latest dot plot showed policymakers still anticipating three rate cuts by
the end of 2024.
The Bank of Japan (BOJ) took a notable turn away from negative rates in March, implementing its first rate hike in 17
years. It also ended its yield curve control policy, which involved purchasing Japanese government bonds to manageinterest rates. The Japanese yen showed a brief initial response but the markets mostly shrugged off the BOJ’s
decision. UST yields subsequently traded within a relatively narrow range until the end of the month. At the end of
March, the benchmark 2-year and 10-year UST yields settled at 4.62% and 4.20%, respectively, 0.1 bps higher and 5
bps lower compared to the end of February.
Chart 1: Markit iBoxx Asian Local Bond Index (ALBI)
For the month ending 31 March 2024

For the year ending 31 March 2024

ALBI

ALBI

ThailandThailandTaiwanTaiwanSouth Korea

South Korea

Singapore

Singapore

Philippines

Philippines

Malaysia

Malaysia

Indonesia

Indonesia

India

India

Hong Kong

Hong Kong

China Offshore

China Offshore

China

China
-2%

-1%

0%

Bond

FX

1%

2%

-10%

-5%

0%

Bond

FX

5%

10%

Source: Markit iBoxx Asian Local Currency Bond Indices, Bloomberg, 31 March 2024.

Central banks in Malaysia and Indonesia leave policy rates unchanged
Bank Negara Malaysia maintained its overnight policy rate at 3.00%, indicating that its monetary policy stancecontinues to support the economy. The central bank also noted that the Malaysian ringgit is undervalued, considering
the country’s robust economic fundamentals and growth outlook. Furthermore, it emphasised its collaboration withthe government in implementing coordinated measures, which are “contributing to greater inflows, lending support
to a firmer ringgit”. Meanwhile, Bank Indonesia held policy steady at its March meeting, focusing on stabilising therupiah and controlling inflation. However, it hinted at potential rate cuts in the second half of the year. In themeantime, the central bank plans to expand liquidity incentives to banks to ensure that high borrowing costs do not
stifle credit availability and economic growth.
YOUR GOALS, OUR COMMITMENT.

2

ON THE GROUND IN ASIA MONTHLY INSIGHTS: ASIAN FIXED INCOME (MARCH 2024)

Headline inflation rates accelerate in February
The month of February witnessed a rise in headline inflation rates across the region. Singapore’s consumer price index(CPI) climbed 3.4% year-on-year (YoY), exceeding January’s 2.9% increase and consensus estimates of a 3.2% rise.
Policymakers attributed the increase to an acceleration in accommodation inflation and higher core prices.
Additionally, higher services and food inflation, partially resulting from seasonal effects associated with Lunar New
Year, contributed to the rise in core inflation.
In Malaysia, headline inflation edged up to 1.8% YoY in February, driven in part by the increase in domestic water
tariffs, while core inflation remained stable at 1.8% from January. Indonesia’s headline inflation rose to 2.75% YoY in
February, up from 2.57% in January, driven by higher food and transport inflation, even though core inflation
remained unchanged at 1.68% YoY.
In the Philippines, the headline CPI rose to a higher-than-expected 3.4% YoY in February, up from 2.8% in January,
propelled by a surge in food and non-alcoholic beverages prices along with increased transport inflation, while core
inflation slowed to 3.6% from 3.8% over the same period.
Thailand’s headline CPI declined 0.77% YoY in February, falling for the fifth consecutive month. When excluding raw
food and energy prices, core inflation in Thailand moderated to 0.43% YoY in February from 0.52% in January.
China unveils a 2024 growth target of “about 5%”
Early in March, Chinese Premier Li Qiang presented his first Government Work Report at the annual National People’s
Congress. The report for 2024 revealed a growth target of “about 5%”, with the official fiscal deficit maintained at 3%of GDP. An estimate of last year’s fiscal deficit, which includes off-balance sheet items, was lower than expected atroughly 7%. However, this year’s budget points to a larger deficit of 8.2% if fully executed. A notable announcement
for long-term growth and stimulus was the plan to issue “ultra-long” (30– to 50–year) special sovereign bonds overthe next few years. The CPI inflation target for 2024 was kept unchanged from the previous year at “around 3%”.
Additionally, monetary policy is expected to remain accommodative, described as “flexible, appropriate and precise”.
Market outlook
Remain positive on India, Indonesia and Philippine bonds
We maintain a positive outlook for Asian local government bonds. The anticipated decrease in developed bondmarket yields, as major central banks, including the Fed, pivot towards rate cuts amid easing inflationary pressures,
coupled with increased foreign inflows, is expected to bolster demand for Asian bonds.
We expect the disinflation trend in India, Indonesia and the Philippines to persist. In our view, this should provide theReserve Bank of India, Bank Indonesia and Bangko Sentral ng Pilipinas the flexibility to shift towards rate cuts later inthe year. A backdrop of slow but steady easing of monetary policy, coupled with reasonable growth, should bepositive for local currency bonds in these countries. Additionally, the attractive real yields of these bonds incomparison to their regional peers should further bolster demand.

Asian credits
Market review
Asian credit spreads tighten further in March
Asian credits delivered total returns of 1.06% in March as credit spreads tightened 9 bps. Asian IG credit slightly
underperformed Asian HY, with a return of 0.94% as spreads narrowed 4.6 bps. Asian HY credit gained 1.81% as
spreads tightened 55 bps.
Asian credit spreads widened in early March, partly dragged by weakness in the Chinese property sector due toconcerns about a large developer. However, they recovered later in the month on growing indications that banks
would support the developer. Notably, the lack of significant measures at the National People’s Congress to address

YOUR GOALS, OUR COMMITMENT.

3

ON THE GROUND IN ASIA MONTHLY INSIGHTS: ASIAN FIXED INCOME (MARCH 2024)

increasing economic headwinds did not negatively impact Chinese credits. Meanwhile, Hong Kong credits rallied,
driven by strong property sales following the removal of all property cooling measures.
Philippines HY credits also rallied as a major conglomerate based in the country reported a large equity investment
and announced a call on its perpetual bond. Reports of US prosecutors investigating India’s Adani Group for potential
bribery soured sentiment toward Indian credits, resulting in their underperformance. The overall resilience of Asian
credits was supported by strong technicals, as new supply remained relatively limited while fund inflows increased.
By the end of March, spreads for all major country segments, excluding those of India, South Korea and Thailand, hadtightened.
Primary market activity picks up in March
Activity in the primary market picked up slightly in March. The IG space saw 11 new issues amounting to US dollar(USD) 5.5 billion, including a USD 1.4 billion three-tranche issue from Korea National Oil Corp and a USD 1.0 billion
issue from AIA Group. Meanwhile, the HY space saw four new issues amounting to USD 1.4 billion.
Chart 2: JP Morgan Asia Credit Index (JACI)
Index rebased to 100 at 31 March 2023
110
108
106
104
102
100
98
96
94
92
90

JACI

JACI Investment Grade

JACI High Yield

Note: Returns in USD. Past performance is not necessarily indicative of future performance.
Source: Bloomberg, 31 March 2024.

Market outlook
Supportive Asia credit fundamentals and strong technicals, but tight valuation calls for cautious positioning
The fundamental backdrop for Asian credit remains supportive. In China, the aforementioned announcements at the
National People’s Congress suggest that policymakers are aware of the challenging environment. China’s growthtarget still appears ambitious, as the property sector continues to weigh on the economy despite a recent recovery
in the country’s Purchasing Managers’ Index (PMI).
Meanwhile, macroeconomic and corporate credit fundamentals across Asia ex-China are expected to stay resilientwith a recovery in exports growth potentially offsetting softer domestic conditions. Non-financial corporates may
experience a slight weakening in both leverage and interest coverage ratios stemming from lower earnings growthand incrementally higher funding costs. However, we believe there is adequate ratings buffer for most, especially the
IG corporates. Asian banking systems remain robust, with a stable deposit base, solid capitalisation and strong preprovision profitability providing buffers against moderately higher credit costs ahead.
From a technical perspective, we expect Asia credit to remain well-supported due to subdued net new supply as
issuers continue to access cheaper onshore funding. Although fund flows into emerging market hard currency funds
have remained weak, demand remains strong from regional institutional investors looking to lock in attractive yields.
However, following the sharp rally in recent months, these positive factors have been largely priced in. The realisationof certain negative risk factors such as a weaker-than-expected global economy, as well as local political uncertainties
and geopolitical tensions, may exert some widening pressure on Asia credit spreads, particularly in the IG segment.
YOUR GOALS, OUR COMMITMENT.

4

ON THE GROUND IN ASIA MONTHLY INSIGHTS: ASIAN FIXED INCOME (MARCH 2024)

Important information: This document is prepared by Nikko Asset Management Co., Ltd. and/or its affiliates (Nikko AM) and is for distribution
only under such circumstances as may be permitted by applicable laws. This document does not constitute personal investment advice or apersonal recommendation and it does not consider in any way the objectives, financial situation or needs of any recipients. All recipients arerecommended to consult with their independent tax, financial and legal advisers prior to any investment.
This document is for information purposes only and is not intended to be an offer, or a solicitation of an offer, to buy or sell any investments orparticipate in any trading strategy. Moreover, the information in this document will not affect Nikko AM’s investment strategy in any way. The
information and opinions in this document have been derived from or reached from sources believed in good faith to be reliable but have notbeen independently verified. Nikko AM makes no guarantee, representation or warranty, express or implied, and accepts no responsibility or
liability for the accuracy or completeness of this document. No reliance should be placed on any assumptions, forecasts, projections, estimates orprospects contained within this document. This document should not be regarded by recipients as a substitute for the exercise of their own
judgment. Opinions stated in this document may change without notice.
In any investment, past performance is neither an indication nor guarantee of future performance and a loss of capital may occur. Estimates of
future performance are based on assumptions that may not be realised. Investors should be able to withstand the loss of any principal investment.
The mention of individual securities, sectors, regions or countries within this document does not imply a recommendation to buy or sell.
Nikko AM accepts no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this document, provided
that nothing herein excludes or restricts any liability of Nikko AM under applicable regulatory rules or requirements.
All information contained in this document is solely for the attention and use of the intended recipients. Any use beyond that intended by Nikko
AM is strictly prohibited.
Japan: The information contained in this document pertaining specifically to the investment products is not directed at persons in Japan nor is it
intended for distribution to persons in Japan. Registration Number: Director of the Kanto Local Finance Bureau (Financial Instruments firms) No.
368 Member Associations: The Investment Trusts Association, Japan/Japan Investment Advisers Association.
United Kingdom: This document is communicated by Nikko Asset Management Europe Ltd, which is authorised and regulated in the United
Kingdom by the Financial Conduct Authority (the FCA) (FRN 122084). This document constitutes a financial promotion for the purposes of the
Financial Services and Markets Act 2000 (as amended) (FSMA) and the rules of the FCA in the United Kingdom, and is directed at professional
clients as defined in the FCA Handbook of Rules and Guidance.
Luxembourg and Germany: This document is communicated by Nikko Asset Management Luxembourg S.A., which is authorised and regulated in
the Grand Duchy of Luxembourg by the Commission de Surveillance du Secateur Financier (the CSSF) as a management company authorised
under Chapter 15 of the Law of 17 December 2010 (No S00000717) and as an alternative investment fund manager according to the Law of 12 July
2013 (No. A00002630).
United States: This document may not be duplicated, quoted, discussed or otherwise shared without prior consent. Any offering or distribution ofa Fund in the United States may only be conducted via a licensed and registered broker-dealer or a duly qualified entity. Nikko Asset Management
Americas, Inc. is a United States Registered Investment Adviser.
Singapore: This document is for information to institutional investors as defined in the Securities and Futures Act (Chapter 289), and intermediaries
only. Nikko Asset Management Asia Limited (Co. Reg. No. 198202562H) is regulated by the Monetary Authority of Singapore.
Hong Kong: This document is for information to professional investors as defined in the Securities and Futures Ordinance, and intermediaries only.
The contents of this document have not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong. Nikko
Asset Management Hong Kong Limited is a licensed corporation in Hong Kong.
New Zealand: This document is issued in New Zealand by Nikko Asset Management New Zealand Limited (Company No. 606057, FSP22562). It
is for the use of wholesale clients, researchers, licensed financial advisers and their authorised representatives only.
Kingdom of Bahrain: The document has not been approved by the Central Bank of Bahrain which takes no responsibility for its contents. No offerto the public to purchase the Strategy will be made in the Kingdom of Bahrain and this document is intended to be read by the addressee only
and must not be passed to, issued to, or shown to the public generally.
Kuwait: This document is not for general circulation to the public in Kuwait. The Strategy has not been licensed for offering in Kuwait by the Kuwaiti
Capital Markets Authority or any other relevant Kuwaiti government agency. The offering of the Strategy in Kuwait on the basis a private placement
or public offering is, therefore, restricted in accordance with Decree Law No. 7 of 2010 and the bylaws thereto (as amended). No private or public
offering of the Strategy is being made in Kuwait, and no agreement relating to the sale of the Strategy will be concluded in Kuwait. No marketingor solicitation or inducement activities are being used to offer or market the Strategy in Kuwait.
Kingdom of Saudi Arabia: This document is communicated by Nikko Asset Management Europe Ltd (Nikko AME), which is authorised and regulatedby the Financial Services and Markets Act 2000 (as amended) (FSMA) and the rules of the Financial Conduct Authority (the FCA) in the United
Kingdom (the FCA Rules). This document should not be reproduced, redistributed, or sent directly or indirectly to any other party or published infull or in part for any purpose whatsoever without a prior written permission from Nikko AME.
This document does not constitute investment advice or a personal recommendation and does not consider in any way the suitability or
appropriateness of the subject matter for the individual circumstances of any recipient. In providing a person with this document, Nikko AME is
not treating that person as a client for the purposes of the FCA Rules other than those relating to financial promotion and that person will nottherefore benefit from any protections that would be available to such clients.

YOUR GOALS, OUR COMMITMENT.

5

ON THE GROUND IN ASIA MONTHLY INSIGHTS: ASIAN FIXED INCOME (MARCH 2024)

Nikko AME and its associates and/or its or their officers, directors or employees may have or have had positions or material interests, may at any
time make purchases and/or sales as principal or agent, may provide or have provided corporate finance services to issuers or may provide or
have provided significant advice or investment services in any investments referred to in this document or in related investments. Relevant
confidential information, if any, known within any company in the Nikko AM group or Sumitomo Mitsui Trust Holdings group and not available to
Nikko AME because of regulations or internal procedure is not reflected in this document. The investments mentioned in this document may not
be eligible for sale in some states or countries, and they may not be suitable for all types of investors.
Oman: The information contained in this document nether constitutes a public offer of securities in the Sultanate of Oman as contemplated by
the Commercial companies law of Oman (Royal decree 4/74) or the Capital Markets Law of Oman (Royal Decree80/98, nor does it constitute anoffer to sell, or the solicitation of any offer to buy non-Omani securities in the Sultanate of Oman as contemplated by Article 139 of the Executive
Regulations to the Capital Market law (issued by Decision No. 1/2009). This document is not intended to lead to the conclusion of any contract ofwhatsoever nature within the territory of the Sultanate of Oman.
Qatar (excluding QFC): The Strategies are only being offered to a limited number of investors who are willing and able to conduct an independent
investigation of the risks involved in an investment in such Strategies. The document does not constitute an offer to the public and should not be
reproduced, redistributed, or sent directly or indirectly to any other party or published in full or in part for any purpose whatsoever without a priorwritten permission from Nikko Asset Management Europe Ltd (Nikko AME). No transaction will be concluded in your jurisdiction and any inquiries
regarding the Strategies should be made to Nikko AME.
United Arab Emirates (excluding DIFC): This document and the information contained herein, do not constitute, and is not intended to constitute,a public offer of securities in the United Arab Emirates and accordingly should not be construed as such. The Strategy is only being offered to alimited number of investors in the UAE who are (a) willing and able to conduct an independent investigation of the risks involved in an investment
in such Strategy, and (b) upon their specific request. The Strategy has not been approved by or licensed or registered with the UAE Central Bank,
the Securities and Commodities Authority or any other relevant licensing authorities or governmental agencies in the UAE. This document is forthe use of the named addressee only and should not be given or shown to any other person (other than employees, agents or consultants inconnection with the addressee's consideration thereof). No transaction will be concluded in the UAE and any inquiries regarding the Strategy
should be made to Nikko Asset Management Europe Ltd.
Republic of Korea: This document is being provided for general information purposes only, and shall not, and under no circumstances is, to beconstrued as, an offering of financial investment products or services. Nikko AM is not making any representation with respect to the eligibility ofany person to acquire any financial investment product or service. The offering and sale of any financial investment product is subject to theapplicable regulations of the Republic of Korea. Any interests in a fund or collective investment scheme shall be sold after such fund is registeredunder the private placement registration regime in accordance with the applicable regulations of the Republic of Korea, and the offering of suchregistered fund shall be conducted only through a locally licensed distributor.

YOUR GOALS, OUR COMMITMENT.

6