Schroder Investment: Expects the Asian credit spread to remain relatively stable by 2025.

Recently, Schroders global published an article stating that the overall yield of Asian credit is still at multi-year highs and, driven by favorable market conditions, it is expected that the credit spread in 2025 will remain relatively stable. Schroders global pointed out that in 2025, several key factors may make the Asian credit market attractive. Firstly, it is expected that the Asia-Pacific region will continue to be the engine of global economic growth, which will benefit credit fundamentals and help reduce default rates. Compared to emerging markets, Asia has a large developed market and the macroeconomic environment of middle-income countries in the region has improved, providing more high-quality investment opportunities. The relatively low leverage ratios in Asian corporate balance sheets and their conservative growth targets further strengthen the credit fundamentals. Secondly, with negative net supply and strong demand in the Asia-Pacific region, the technical aspect remains strong. Expectations of a strong US dollar and investors seeking attractive yields in US dollar-denominated asset categories may further stimulate demand for Asian credit. In 2025, as Asian credit yields (JPMorgan Asia credit index yield at maturity is 6.2%) are expected to remain high for an extended period, the spread will continue to be the focus of the investment market. As spreads narrow, investors should carefully select credit products, considering issuers with strong fundamentals and resilient business models. Overall, Schroders global holds attractive and high-quality spreads as the cornerstone of its investment portfolio, while also seeking interesting investment opportunities in the high-yield sector. Schroders global prefers investment-grade financials in Australia and Japan, as well as high-yield credits in India's renewable energy and Macau's gaming industry. Given the increasing corporate governance risks, prudent position sizing and selective participation in new credit issuances are critical. Lastly, in terms of interest rates, Schroders global believes that credit markets with shorter yield curves offer the most value. In the face of ongoing interest rate fluctuations, Schroders global leans towards maintaining a neutral to slightly overweight position while maintaining flexible allocation. Compared to most regions, Asian credit benefits from shorter maturities, and Schroders global optimistically believes that this asset class can withstand interest rate fluctuations, especially given the unpredictable inflation concerns sparked by Trump's policies. Schroders global stated that in 2025, there are many events that could impact the credit market, including various policies of the Trump administration, fiscal stimulus plans in mainland China, and further geopolitical tensions. As for the major impact of Trump's re-election on Asia, it includes: 1) tariffs and economic growth; 2) US dollar rates and trends. Considering the potential escalation of global trade frictions and uncertainties, locally-oriented Asian markets or credit issuers may maintain resilience. This includes some businesses in India, Indonesia, Australia, and Japan. Furthermore, with spreads continuing to widen, the financial sector (a sector Schroders global is predominantly overweight in credit strategies) will thrive in a US market that is more favorable to economic growth and inflation. On the other hand, Schroders global does not favor industries with excess capacity, such as automotive, Korean batteries, industrial, and petrochemical sectors. In terms of Chinese credit, many Chinese credits are more resilient now compared to Trump's first term, as issuers have clearer positioning and more resilient business models or supply chains. Therefore, although Schroders global's focus remains on industries of strategic importance and less affected by geopolitical tensions, such as certain internet platforms, technology, and consumer goods, they will continue to pay attention to investment opportunities that can provide excess returns and market misalignments. Overall, Schroders global believes that investors have ample reason to reconsider the Asian credit market, as stable fundamentals, favorable technical aspects, and attractive overall yields can adequately compensate for potential market volatility in the future. For investors with existing global credit allocations, Asian credit offers potential attractive diversification benefits, further enhancing the risk-return potential of a broader investment portfolio.