Viewpoints

Asia Market Outlook: What Is in Store for 2018?

Nominal growth is likely to pick up, reflecting some recovery in real GDP and a gradual rise in inflation.

Emerging Asia’s bond markets sprang to life in 2017, and new issuance helped draw more investment flows to the region. Despite a likely slowdown in China’s economy in the year ahead, we expect strong issuance again in 2018 and see attractive opportunities for investors in Asia, particularly in India and Indonesia.

About US$103 billion flowed into emerging Asia in 2017 by our estimate, up sharply from US$50 billion in 2016, with fixed income inflows outweighing equity by more than two to one. Asian corporate bonds, in particular, were a strong draw: Gross supply climbed to around US$290 billion, far exceeding 2016 new issuance of US$169 billion. According to J.P. Morgan research, 2018 should see similar healthy supply. Asian bonds also continued to perform well, with the J.P. Morgan Asia Credit Index (JACI) delivering a healthy 5.78% in 2017, down slightly from the 5.81% seen in 2016.

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The Author

Robert Mead

Head of Australia, Co-head of Asia-Pacific Portfolio Management

Tomoya Masanao

Head of PIMCO Japan; Co-head, Asia-Pacific Portfolio Management

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Past performance is not a guarantee or a reliable indicator of future results.

All investments contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Investing in foreign-denominated and/or -domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Sovereign securities are generally backed by the issuing government. Obligations of U.S. government agencies and authorities are supported by varying degrees, but are generally not backed by the full faith of the U.S. government. Portfolios that invest in such securities are not guaranteed and will fluctuate in value. Currency rates may fluctuate significantly over short periods of time and may reduce the returns of a portfolio. Derivatives may involve certain costs and risks, such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested.

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